In the dynamic world of financial markets, mastering the art of trend line trading is pivotal for success. The Trend Breaker Strategy is a testament to this, offering traders a unique blend of precision and practicality.
This approach navigates through the intricacies of market trends, equipping traders with the insight to discern potential opportunities and pitfalls.
Embracing the Trend Breaker Strategy is not just about understanding market movements. It’s about aligning with the rhythmic pulse of the markets for optimal decision-making.
Here, we delve into the essence of this strategy, unraveling its potential to transform trading endeavors.
Table of Contents
Trend Line Trading: The Trend Breaker Strategy
I have developed a new Trend Breaker Strategy that is simple and yet easy to understand.
In this article, I will teach you how to draw trend lines correctly, trendline breakout confirmation, trendline trading strategy secrets, four keys to profitable forex trend trading, and many more critical elements to trading.
This strategy may also be used with accuracy when day trading trend lines. We will have all the top trendline trading tips in this article. Also, we have training on trend line drawing with Fractals if you’re interested.
This Trendline Breakout Trading Strategy uses three indicators, which are the following:
- MACD: The inputs for this indicator are fast length= 12 (represents the previous 12 bars of the faster-moving average), slow length= 26 (represents the last 26 bars of the slower-moving average), and signal smoothing= 9 (means the previous 9 bars of the difference between the two moving averages. Vertical lines plot this called a histogram).
- Simple Moving Average: The inputs for this indicator are length 8 and offset 0. (Red line).
- Exponential Moving Average: The inputs for this indicator are Length 20 and Offset 0. (Blue line).
The Trend Breaker strategy also uses three different time frames. They are the 4-hour, the 1-hour, and 15-minute time frames. This top-down approach uses these time frames to identify a trend, find a breakout point, determine an entry point, and execute the trade.
How to Use the Trend Breaker Strategy: Step-by-step Process
The Trend Breaker Strategy is a robust approach to trading that focuses on identifying key trend lines and their breakouts. This step-by-step process guides you through recognizing significant patterns, determining entry and exit points, and effectively managing risks.
With each step, you’ll gain insights into harnessing the power of market trends and making informed decisions that capitalize on the dynamic nature of trading. This foundational guide is designed to enhance your trading skills, empowering you to navigate the markets with confidence and precision.
Step #1: Identify a Trend
You first need to identify an upward, downward, or sideways trend by switching to a 4-hour and 1-hour time frame. The reason both are used is that it will give you the best perspective in determining a trend according to this strategy.
Draw a trendline so that three points of resistance or support are touched. We created this trendline trading system so that you could easily enter trades without a lot of guesswork on your part.
Since this strategy focuses on trends, a trend line will be drawn on the support or resistance lines of the trend. The criteria for a trend is that there need to be at least three points of resistance or support.
As shown in the 4-hour time frame below, this is clearly a downtrend.
Below is the same chart, but this is a 1-hour time frame. This is just to get another perspective on this downtrend. It is good to do this to confirm this trend completely by identifying three resistance levels.
Trading with trend lines is not easy, so it is essential to have a clear system of step-by-step rules to make it easy for you to follow.
Step #2: Identify a Breakout Point for the Trendline Trading System
In order to find a breakout point of the trend that was identified in step one, the strategy will use a combination of the three indicators (MACD, 15-minute SMA, EMA) to identify a break out on the 15-minute time frame.
This time frame is used because a trend was already identified in step one on the 4-hour and 1-hour time frames.
As you can see in the chart above, in the 15-minute time frame, the MACD lines were crossed. When the crossover of the fast length and slow length occurs, this will signal a new trend. This indicated that a trend was breaking. The moving average and exponential moving average lines also crossed.
So, when the MACD lines cross and the simple moving average/ exponential lines cross, wait until the candlesticks go above/below the trend line drawn in step one, then identify a point of entry into the trade.
One of the reasons we like trend line trading so much is that it is straightforward and simple, and we recommend all traders have something simple.
Our example above shows that the criteria were met to go to step three because the SMA and EMA crossed and the MACD lines crossed. Also, the trend went upwards and hit our trend line. This is a signal to go to step three.
If neither of the indicators crosses before the candlesticks close and hits the trend line, then do not go any further because the trade does not meet the criteria of the rules. The indicators must show that the trend broke before it touched the trend line.
Note: When our indicators cross, the trend needs to be heading toward the trend line drawn in step one. This is because the trend is breaking, and a breakout is about to occur. When the breakout happens, we will discuss when to make an entry.
Step #3: Identify a Point of Entry
Below is a list of the entry criteria. These four things must happen to enter a trade with this Trend Breaker Strategy.
- A simple moving average must cross below the exponential moving average.
- MACD must cross.
- The price must break below or above the trend line.
- After the trendline break, you must wait for three candles to close on the 15-minute chart before taking your entry.
Now, we need to identify a point of entry. To identify a point of entry, always use the 15-minute time frame in this strategy.
So, in our example below, we see that there is an obvious stand-off between buyers and sellers on the trend line.
You execute the trade once there are at least three candlesticks above or below the trend line.
In this example, there are three candlesticks that fell above the trend line after our indicators signaled that the trend was broken. At this point, you want to make an entry. Also, feel free to read about the trader’s tech and installing MT4 EAs with indicators.
Once your entry point has been determined, you can place a stop loss.
Step #4: Determine Where to Place a Stop Loss
Place a stop loss past the last support and resistance levels in the trend itself. Again, use the 15-minute time frame to find this point of resistance/ support level.
In the example shown below, place the stop loss below the last support level. This will ensure that if there is a bearish move, it will hit the last point of support and make a bullish move upwards.
You can clearly see that there are two levels of support in the above example. Use the support levels to determine the stop loss. The rules were to place the stop loss below the last support level, which is why you see the stop loss below these levels.
Step #5: Trendline Trading System Exit Strategy
The plan identified a trend, a breakout point, and a point of entry and determined a stop loss. Now, the final step is to determine the exit point.
This Trend Breaker strategy uses a one-risk-to-three-reward ratio. What that means is you have the potential to make three times more than you are risking.
To do this, you first need to identify how many pips there are from your entry point to your stop loss. So, let’s just say you had 24 pips in between these positions. Since we are using a one-risk-to-three-reward ratio, we would simply multiply the number of pips in between the stop and entry by three. This would give us 72.
Now, 72 pips would be the target number for that trade. As you can see in the example below, the target was hit with a gain of +72 pips!
The rules were followed, the ratio of a risk of one to three reward was put in place, and the trading strategy worked to perfection!
This Trend Breaker Strategy is simple and yet effective. There is no need to stress and worry that you made the wrong trade. You follow the rules and do not let anything else make you back out of a trade. If it follows the rules, execute the trade with confidence.
Always remember to risk no more than 2% of your account! This will help you identify daily trends and points where they break.
Moreover, there is no need to force yourself into a trade. If it does not follow your rules and guidelines, then search for another pair to trade. Feel free to check out one of our other trading strategies.
We also have a guide on the Fibonacci Trend Line Strategy if you’re interested.
Trend Line Trading Video
Here is the trend line trading YouTube video we have produced to help you easily follow the strategy.
Trendline Trading Strategy PDF Download
If you think this strategy will work great for you, then check out the free report on this strategy!
This entire report will show you detailed information about this strategy and why it works so well. It will also show you more examples of how to use this strategy. Get the Trendline Trading Strategy PDF.
Please let us know if you have any questions at all about Trend Breaker Strategy!
Feel free to contact us at email@example.com
Trend Breaker Trading Strategy Info-graphic Download
Please share this strategy below and keep it for your own personal use! Thanks, traders!
We are sorry that this post was not useful for you!
Let us improve this post!
Tell us how we can improve this post?