Advanced technique #11 (True and False Trend Line Breakouts)

Hi, Jatin

Trading trend line breakouts would be easy if all the time we had just one trend line breakout pattern, but we don't.
Below are just few possible outcomes of a trend line breakout.

Let's review our options:
Taking entries on the trend line break (green dot) is great, when price is determined to go higher (case #1 and #6), in fact, in case #6 that's the only opportunity to enter.

A bit scary, though, if it happen to be case #4, where we could, actually, instead of a normal break, witness just a spike - price would poke the line, triggering our Buy order and return back below the line...

But, what about remaining scenarios? By entering on the initial trend line break we could also be taken for a long ride up and down without any result; that's because it is not yet known whether the trend line itself is an important level of support/resistance. When will we know it? Only when a trend line is re-tested.
If a trend line holds on a re-test, it confirms that there are forces behind it. But are they strong?
Same thing, we don't know yet, still the obvious benefit of entering on a trend line re-test (blue dot) is that we could risk very little to find out the truth — our stop will be placed just below the trend line, or even better, if we switch to a smaller time frame, we could identify a candle that clearly bounced off of the line and then put a stop just below that candle. So, entering on the re-test of a trend line, especially when, according to your market studies, the breakout was expected and should trigger a new trend, is a good choice.

And, finally, our third option is to wait till the driving forces behind the new breakout are proved to be strong — we enter on the break of the first swing which came after the breakout (yellow dot). This is the most conservative approach, which allows to avoid majority of false breakouts, plus you won't need to wait long for the results to come, as opposed to "green dot entry".

Hope this helps to select your preferred type of trend line breakout entries.

This is just a trading technique, so to speak, for stops and profits you'd be using your regular/other Forex strategy.
Happy trading!

Edward

I have a comment about the TL break. When we have a wedge like we did in GBP a little while ago, as far as SL, I make it on line with the apex of the wedge (as seen with the fibo number for easy reference).

I was within a few pts of getting hit on this one, but usually it works good, as very often there is a retrace after the break, as in a bear/bull trap, and then the break continues.

Also, most times the go with the general trend, so be careful with a counter trend trade like the EUR was a little while ago.

Keep up the good work Edward and crew!

Grant

Clear and simple, just awesome....

Thanks with many regards,
Puguh Kurniawan

Hi Edward, this is one of the best learning site i've found. Would like to add some small tips on trading breakouts.

Based on Example 1 above, the breaking candle is the signal candle whether or not true breakout will happen, if anyone wants to ride the bus earlier, not wait for the pullback, just enter buy stop 10 pips above the high of the breaking candle, most important is wait for the breaking candle to complete than can enter the PO.

Why complete candle is important? if the breaking candle is a reversal pin bar at the trendline, would anyone dare to challenge the bears..?

armafx

Hi armafx,

Thank you for your feedback as well as simple and useful tips.

Happy trading!
Edward

yes sir ur correct iam doing trading on this method and i got good returns when i studied ur concept i got one of my mistake solution thank u very much sir my heartiest blessings to u giving free knowledge