How to Trade Trendline Breaks
Mar 4th, 2009 | By David Grandey | Category: Stock Market InvestingAs the market is breaking into new lows, it’s time to talk about trendline breaks (in this case to the downside) and what happens/what to look for after a trendline break.
All uptrends break to the downside and all downtrends eventually break to the upside. They are Change In Trend patterns that you really need to be on the lookout for. After all, if you are long, a trendline break to the downside is your cue to get out of dodge. Conversely, if you are short and an issue breaks its downtrend to the upside, it’s time to run for cover and lock in your gains.
Today we’ll be talking about trendline breaks to the downside. They say a picture is worth a thousand words… so rather than explain it away, just take a look at the charts below. They are great examples of what we are talking about…
So what happens after they break the uptrend to the downside? We call that a1st Thrust. That first thrust is an excellent trading opportunity — it’s often one of the most explosive moves a stock will make. Think about it. If a stock has been going up for a long time, it’s going to fall hard and fast when institutions decide they want out. The same goes after a stock’s been falling for some time. We’ve seen stocks absolutely go into orbit as investors pile on to get in at bargain prices.
After a 1st thrust down, we want to watch for a snapback rally as shown.
The battle cry with these patterns are : 1ST THRUST DOWN (blue box on all), SNAP BACK RALLY (Pink Lines) , BOMBS AWAY.
Now it’s your turn, look at the issue below. What do you see?
Source: How to Trade Trendline Breaks
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David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains. A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media.
