Most of the traders out there use the breakout of the trend line to trade. There is a very big debate about the interpretation of a trend line breakout. A lot of traders are using the breakouts to initiate a position. They go long8 when a downtrend line is penetrated9 upwards or short10 when an uptrend line is penetrated downwards.
Others are using the uptrend lines as levels to buy when the prices are “touching” the trend line or shorting when prices are approaching the level of downtrend line. So is that correct? Can we really use the trend lines to trade?
The correct answer is coming not from the definition of the trend lines themselves, but from the basics of the trading: we go long when an uptrend has started or a downtrend has already been established.
Now the question is: does a valid breakout of a trend line indicate that a trend is changing or at least that it is in the early stages of a new trend?
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