A Powerful Trendline Breakout Trading Strategy that Every Trader Should Know

Do you want to know more about trendlines and how to profitably trade the trendline breakouts? Watch our latest video to find out one of the most powerful trendline breakout trading strategy and get profitable trading results.

Trendline breakout trading strategy – A simple explanation

One of the most basic forms a technical analysis is trend line analysis. You are essentially looking for support or resistance that follows an angle on the chart. Over time, other traders tend to notice these angles and the support or resistance at that angle into up being a bit of a self-fulfilling prophecy every time we hit that line. However, there are a couple of basic rules when looking at trend line to determine whether or not they are actually valid.

As a general rule, the higher the timeframe the more important the trend line. This is because the markets take quite a bit more time to form a trend line on a weekly chart, as opposed to a 5-minute chart. It takes a lot more volume in market trading, and that of course means that there is much more confidence in the barrier. Also, most people require the trend line to withstand at least 3 attempts to break through it. In other words, the trend line needs to be touched 3 times during the previous trading.

As far as trend line breakouts are concerned, there are a few ways to trade them. The easiest and simplest way although the riskiest, is to simply buy or sell once we break above or below the trend line in question. However, there is the possibility that you get a little bit of a false break out, so some people will actually use the second method. In this method, people will wait until there is a candle close above or below the trend line in question. Obviously, the higher the timeframe of the candle, the more likely it is to give a true signal. Lastly, some people will be even more risk adverse and wait for not only the breakout, but the return and the retesting of the former trend line as the opposite force. In other words, if we break above the top of a downtrend line, quite often the markets will come back to that trend line and trying to find out if what was once resistance will become support. Once it does, that confirms that the breakout still has plenty of momentum behind it. However, the markets don’t always come back retest, so you do run the risk of missing the move.

Ultimately, trend lines are used in almost every trading system out there, and some people will trade just using trend lines themselves. Either way, you have to be very comfortable using them if you plan on doing any type of technical analysis at all.