Stock Trendline Break

After stocks price has moved in a particular direction for an extended period of time within a channel it reaches a point where it stops moving within the channel. When this happens we say that the stock trend line has been broken.

Since the line is point of support or resistance then we expect the stocks market to move toward the opposite direction. When this happens traders will close the stock orders which they had bought or sold. This is referred to as taking profit.

Up Stocks trend Reversal

When stocks price breaks-out upwards line (support) the stocks market will then move down

This signal is considered to be confirmed with formation of lower high or lower low. This also provides a trading opportunity to go short once it's broken.

Down Stocks trend Reversal

When stocks price breaks-out downward line (resistance) the stocks market will then move up

Downward Channel break

This signal is considered to be complete with formation of higher low or higher high. This also provides a trading opportunity to go long once it's broken.

NB: Sometimes when stocks price breaks its stock trend it might first of all consolidate before moving in the opposite direction. Either way it is always good to take profit when the stocks market direction reverses.

To trade this stocks trading setup as a trader once you open a new trade in direction of the stock trend reversal the stocks price should immediately move in that direction, in a stock price break-out manner. This means that the stocks market should immediately move in that direction without much of a resistance.

If on the other hand the stocks market does not immediately move in direction of the stocks price breakout then it is best to close out the trade because it means that the stock trend is still holding.

Another tip is to wait for the stock trend line to be broken and for the stocks market to close above or below it so as to confirm this stock signal.

What happens is that most traders open trades waiting for a reversal even before the stock trend is broken, only for the stocks price to touch this line and for the current market direction to hold and stock to continue with the current market direction.

Therefore, when trading this stocks setup it is better to wait until the breakout has been confirmed by stocks price closing above or below the stock trendline, depending on the direction of the market.

• Upward Market Direction Reversal - this stock signal is confirmed once the stocks market closes below this upward line, this should be the correct time to open a sell short trade, so as to avoid a stock trading whipsaw.

• Downward Market Direction Reversal - this stock signal is confirmed once the stocks market closes above the downward line, this should be the correct time to open a buy long trade, so as to avoid a stock trading whipsaw.

Combining With Double Tops or Double Bottoms Stock Chart Patterns

A good trade set up to combine this stocks trading setup with is the double tops and double bottoms stocks chart patterns. Read Double Top and Double Bottom Chart patterns Tutorial.

This setup should already have formed before the stock trend break signal. Because these double tops and double bottoms are also reversal stocks signals, then combining these two setups will give the trader a good probability of avoiding a stock trading whipsaw.

In the above chart screenshots these stock trading setups can be confirmed to have formed even before the reversal stock signal appeared.

First Examples of Upwards Direction Reversal - the Double tops pattern had already formed before stock trend break signal appeared on the stock chart.

Second Examples of Downward Direction Reversal - the Double bottoms stock pattern had already formed before stock trend break signal appeared on the stock chart.

Double Top or Double Bottoms Combined With other Reversal Trading Signals