How to trade trendline breaks?

[ycomp]

Hi,

Can anyone recommend any material or suggestions on how to trade trendline breaks? specifically I want to know how to deal with moving trendlines.

I mean if I enter a trade based on a trendline break and then it redraws itself, how should I know:

1) if I should stay in the trade based on the original trendline?; OR
2) if I should re-adjust my targets from the original trendline to the targets based on the new trendline?; OR
3) if I should quit the trade?

I figure if the new trendline is too steep, maybe I can ignore it. But I don't know what to do in other situations.

anyone have any comments or suggestions?0

[Dr. Zogg]

You're probably referring to support and resistance lines.

Tra_ding these lines can be very profitable, and you can do away with indicators if you follow a few simple rules...

1. The steeper the line the shorter it lasts, keep your stops tight if it moves away quickly. Keep your stops just above (resistance) or below (support) the line.

2. The price will always move back towards the support or resistance to test it, if there’s been a sizeable move, wait for the consol_idation to bring it back to the line, then trade.

2. You need at least three touches (or points in a line) to confirm that it is a support or resistance level. Two is not enough. If the price action moves away fast from the line connected by these points it’s probably the dying gasp, but don’t trade until you hit that line again.

3. A good way to choose an entry is to look for an established line and follow it up with sell orders a few pips below (support) or buy orders above the line (resistance) in the opposite direction.

4. If a “trend” is older and you're not sure if it's going to break or not, wait till you're on the line and then straddle it, that way you can get into an older move. I wouldn’t recommend this though; rather wait for a change in direction. Once you’re into the rhythm you’ll almost always have an open position.

5. If you’re not sure phase in your trades, add to your position every ten or twenty pips.

6. Breaks off support and resistance are generally confirmed by big bars or a big bar, so if you see one on a line you know the “trend” has probably changed.

7. Price does not like support or resistance levels. It mostly tests them and then moves away quickly. You’ll rarely find much price action in the vicinity of the line. If price is hanging around a support or resistance level, it’s likely to break in the opposite direction.

8. If the market is moving up you only trade the support line, if down you only trade the resistance line...

Hope that helps….

[ycomp]

cool Dr. Z, thanks for the great reply. I'm a big fan of point form responses

yes, Support & Resistance lines. I've been looking at them all day, just trying to figure out what to do with them... now I have lots of things to work with. thx.
0

[hiltzgroup]

Wicked post Dr. Zogg, I wasn't even in the tread and it helps me tons.
Thanks for the info!!!

[rexyu1]

I always wait until a candle closes the other side of a trendline/pivotpoint by at least 5 pips. Then, wait until the new candle has advanced, in the right direction, by a further 5 pips and enter your trade.

[Trader01]

Place a bucket under the break, a barbecue grill next to the bucket and a case of beer right on top of the break!

Then pay off all your loans and 6-months advance on your rent.

[ezekiel]

Buying/selling on the immediate break of a trendline can be profitable but is also more risky. It is the same as breakout traders buying/selling on the breakout of a range.

In my experience with trendlines, price usually will come back to test the broken trendline to validate the break. zoom down on a smaller timeframe to verify this, it will also help you get in on the move earlier if it is a true break.

also the more touches on the line, the more it is respected.

[SoundFX]

Here's an example of what Ezekial just said. Happened in the GEPPIE. Note the trendline break and the retest. I don't see any reason to be anything but short according to this timeframe.

-SFX