[text_block style=”style_1.png” align=”left”]You can see over here, I have drawn this trend line over here, number of touches, 1-4 touches. And this one over here is the fifth one.
So when you trade trendlines. It’s only confirmed right after the market has bounced the trendline off at least twice.
For example, if I were to look at the chart, I know many traders would say
‘’Oh, Rayner, the market has bounced over here on the trend line, I go short at this point’’.
No, you can’t, because, at this point, you couldn’t even draw the trend line, because, at this level, it has not reversed from this level.
You don’t even know whether the market or rather you can’t even draw the trend line because if you look at this, at this point, you only have one point in the market.
which is this level over here. How do you know to draw, connect these highs over here when the market hasn’t even reacted to this high?
So you have no idea that you will draw the trend line to connect in his highs. Does it make sense?
You can only sort of like draw the trendline after the prices bounce off the trendline at least two times…
So for this one here, it bounced ones, twice, then the third time when you draw the trendline when it comes back the third time, only then can you decide whether this is an area you want to trade from.
Whenever you trade trendlines, remember you need at least two tests of it. To kind of confirm the trendline, if there’s only one bounce of it, it is not even possible to draw a trendline.
For this one over here…
I want you to focus on this portion over here. When you trade trend line, bear in mind that you’re dealing with an area on the chart.
You have no idea at which particular point of the area would it reverse from. Would it be before or after the trend line?
Let’s say we are dealing with an area, I can copy and paste ‘’CTRL + C’’ and ‘’CTRL + V’’ and say that we are dealing with this area of the trend line on your chart.
The question is ‘’Hey Rayner, how do I know which part of the area the price will bounce from?’’
What he be at the earliest point of the line? Or would it retrace deeper? And reverse from here?
The thing is you don’t know, you never know. That’s why you let the price tell you right when to get it right. You let price be your guideline and that’s what we will do down here.
In this case, the price has given us clues. The market is about to reverse a lower came back at once, give you kind of like a shooting star pattern.
This is a price rejection:
The second candle market tried to close higher and It forms a bearish engulfing pattern and telling you that the sellers are in control.
The fourth candle over here, this is another form of price rejection, buyers try to push the price up near this high only to get rejected and closing near the lows.
So at this point, there are multiple price rejection rates, multiple price rejection in this area.
At this point, if you see multiple price rejection at this swing high and this area of resistance, shown by the trendline, this is a sign of weakness and you might want to consider selling right in this market condition.
Where do you sell it?
What it can do is just place a sell stop other below this swing low and to get you to trigger right towards a short side in this market…
So this is one type of an entry trigger a pattern to get you to do a short this market using trend lines.
Because remember you have no idea where and which part of the trend line the market is going to reverse whether the early portion of the trend line or the later portion.
Where the price breaks do a false brick of the trendline and then reverse lower.
So since you have no idea, you let price be your guide, you watch the price action, you look at how the price gets rejected to time your entry.
Another Example BCOUSD
This time around we will have a look at the 8HR timeframe. Again, same thing so at this point, if I just go over here at this point, there is no way you are going to buy it over here.
Because the trend line is not being formed yet. So likewise at this point, it’s also unlikely you’ll buy over here.
Why is that?
Because if you thinking about this, when the price is over here. How you draw this trendline now will look something like this.
Maybe you could buy it over here. But you can see that from the start, where you draw the trend line and maybe after a hundred candles later, your trendline will go through different iterations and variations.
So you constantly tweak it, to adjust it to the current state of the market, bear it in mind…
At this point, the current state of the market, how I would draw this trend line is like this. You can see that price again, bounce off once over here.
Breaks above this high came back, bounce a second-time break above this highest bounce a third time, break up above this high.
Now we can look forward. Let’s see if there’s a fourth bounce at this point. You have a price rejection. Note this over here. The price got rejected by this trend line.
Again, this is not a line on your chart, even though it’s called a trend line. I wish I’d call it trend area.
Because if you’re thinking about this, your trend line is an area in your chart and you just have no idea which part of the trend line you will reverse, whether it be the early portion of the trendline or the later portion.[/text_block]
[text_block style=”style_1.png” align=”left”]This would be an entry trigger for you to go short.
When you trade this trendline break. You want to let the price come close to the moving average before you take the trade.
What do I mean by this?
For example, if you look at this point, you know that the market tested at ones and twice and it came back over here.
And this has a trend line break over here you can draw a trend line.
Let’s be honest, you can draw a trend line over here and take this trade right towards the short side when the price breaks below this trend line.
But I won’t think it right, the reason is that it’s still pretty far away from this area of value from the 200 periods moving average.
So if I were to set my stop loss, it won’t be logical, If I were to set my stop loss above this high.
Because technically I’m cutting my trade into this area of value. So this is why I like to enter my trade as close as possible at the moving average.
So I can set my stop loss just slightly above the moving average. Where it’s at a logical location.
So be aware, If the price is far away from the moving average and there is a trend line break, there is a trade that you might not want to take because if the market pulls back towards the moving average, you will get stopped up.
Hopefully, this our trendline break technique makes sense to you.
How to find higher probability Trendline setups
This is what we’ll cover covering now. Earlier, we have discussed so far is that using trendline and price action to time your entries or using the trend line break to get you into a trade.
What are the tools that you can use to find higher probability trendline trading setups?
The same thing applies, when you draw a trend line, zoom out your charts.
I will highlight you to this point over, so I’ll just draw this level and you’ll see why shortly this level is significant.
You can see that price bounce once or twice or, and this is the time the market came into this level on top of it. If you know simple support resistance, you can draw support resistance on your chart.
And if you ask me, I would say there is an area of support somewhere here.
Where price tested support once, twice, break down, and now tested previous support that could become resistance.
This is a key point over here, this is a key level on a chart, a key area in the chat.
Why is that? Because you have multiple, technical confluence coming together…[/text_block]
Look at this price rejection, multiple price rejection right here and even here at coming to this key area, after which the price breakdown.
And finally, one last thing, if you look at a lower time frame, there is also a break of structure.
So let me explain what this means if you look at this portion over here on the lower timeframe
You can agree that it’s going to be a series of higher high and higher lows because that’s how the market makes a higher move.
Let me explain that to you, on a 4H timeframe, you’ll see a series of higher highs and higher lows. So you can see that over here on the lower time frame you have this series of higher highs, higher lows, and higher highs.
So where the break of structure occur is at this point over here with a market made, a lower high, and lower low.
This is a break of structure you can see that they have multiple factors coming in, prices retesting that downward trend, area of value where it’s an area of resistance.
Multiple price rejection on the higher time frame., a break of structure on this 4H time frame. It gives you that number of confluence coming together that makes this a higher probability trading setup.