Indices Trend Line Break

After stock indices trading price has moved in one specific direction for an extended time period within a channel it reaches a point where it then stops moving within this channel. When this happens we say that the trend-line has been broken.

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

Up indices trend Reversal

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

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

Down indices trend Reversal

When stock indices price breaks downward line (resistance) the stock indices trading market will then move up

Downward Channel break

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

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

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

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

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

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

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

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

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

Combining with Double Tops or Double Bottoms Chart Patterns

A good trade set up to combine this stock indices trading setup with is the double tops and double bottoms stock indices patterns. Read Double Top & Double Bottom Chart patterns Guide.

This setup should already have formed before the indices trend break signal. Because these double tops and double bottoms are also reversal stock indices trading signals, then combining these 2 setups will give the trader a good probability of avoiding a indices trading whipsaw.

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

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

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

Double Top or Double Bottom Combined with other Reversal Trading Signals