Revealing my SECRET Trendline Break Strategy

Summary

This video script introduces a unique trendline trading strategy that involves drawing trendlines, waiting for a price breakout, and then entering trades after a retest and rejection of the breakout area. It emphasizes patience and proper risk management with stop losses and take profit points, aiming to change the way traders approach trendlines.

Takeaways

• 📈 Start by drawing a trend line in an uptrend by connecting the higher lows, and in a downtrend by connecting the lower highs.
• 🔗 A valid trend line should be touched by the price at least three times, with more touches indicating greater strength.
• 🚫 Avoid entering a trade immediately when the price breaks the trend line, as this can lead to false breakouts and losses.
• 📊 Use a rectangle tool to highlight the candle that breaks the trend line, and wait for the price to retrace back to this area before considering a trade.
• 🔄 Look for confirmation of rejection in the form of multiple long wicks or a doji candlestick before entering a trade, indicating the price does not want to continue in the breakout direction.
• 🚀 Enter a trade when the price shows clear rejection of the rectangle area, placing the stop loss above the breakout candle for a sell position, or below it for a buy position.
• 💰 Set take profit levels based on the previous touches of the trend line, using these as potential resistance or support levels.
• 🔄 Adjust take profit levels dynamically as the price reaches each level, moving the stop loss to protect profits and allowing the trade to run for further profits.
• 📉 Be prepared to exit the trade if the price approaches the next resistance or support level and shows signs of reversal, rather than holding onto the trade indefinitely.
• 🌐 This strategy can be applied across various time frames, from the 15-minute to the daily chart, though the speaker prefers using shorter time frames like the one-hour or four-hour chart for better clarity.

Q & A

What is the basic concept of trading trend lines according to the script?

The basic concept is to connect higher lows in an uptrend and lower highs in a downtrend to form a trend line. The trend line should be touched by the price at least three times for it to be considered valid and stronger with more touches.

Why is it important to wait for the price to break the trend line before trading?

Waiting for the price to break the trend line is part of the 'magical trend line break strategy' mentioned in the script. It helps to avoid premature entry which can lead to fake-outs and potential losses.

What is the purpose of highlighting the candle that breaks the trend line with a rectangle tool?

Highlighting the candle that breaks the trend line helps to focus on the specific price area that needs to be retested. It serves as a visual aid for identifying the entry point for the trade after the price has retraced.

Why should a trader not enter a trade immediately after the price breaks the trend line?

Entering immediately after the price breaks the trend line can result in a fake-out where the price might revert, causing a loss. It's recommended to wait for the price to retrace and show rejection of the broken trend line area before entering the trade.

What is the significance of looking for a confirmation of rejection after the price retraces to the broken trend line area?

Confirmation of rejection indicates that the price does not want to continue in the direction of the breakout, providing a more reliable signal to enter a trade with a higher probability of success.

How does the script suggest determining take profit levels for the trend line break strategy?

The take profit levels are determined by drawing a line at all the times where the price touched the trend line before the breakout. These points are labeled as points A, B, and C, with point C being the first take profit level, followed by points B and A if the price continues in the same direction.

What is the recommended approach for managing the take profit levels after the first level is reached?

After the first take profit level (point C) is reached, a trader can either close the entire trade to secure profits or take partial profits by closing half of the trade and letting the other half run to the next take profit level (point B).

Why is it important to move the stop loss as the price creates new structure?

Moving the stop loss with the new structure of higher highs and higher lows ensures that a trader is protected from losses while still allowing the trade to run for potentially greater profits.

What is the recommended time frame for trading the trend line break strategy according to the script?

While the script uses the daily time frame for demonstration, it is recommended to trade the strategy on time frames such as 15 minutes, one hour, or four hours, depending on the trader's preference.

How does the script address the reality that no trading strategy works all the time?

The script acknowledges that not all trades will be successful and emphasizes the importance of adapting and reacting to the market. It suggests being prepared to exit a trade if the price behaves contrary to expectations, even if it means moving the stop loss to secure some profit.