How to Day Trade a Rising Trendline Breakdown
1.
Step 1
When a stock is in an uptrend, it will find support off of its rising trendline. Once a stock has broken its rising trendline it will fall back to its next level of support. Find the next rising trendline where the stock is likely to retrace to by drawing a line through previous lower highs and lower lows. The stock price will most likely trade back to this rising trendline level, as it will represent stronger support then the previous uptrend. On the chart, I have drawn a white trendline that was broken and price moved back to the next rising trendline drawn in yellow.
2.
Step 2
Watch for the next trendline to hold as support. Allow a couple of candlesticks to form to confirm that this trendline is holding. Enter a buy order close to the trendline support level for the best price. On the chart I have circled the area in Red that would be a great time to enter a trade.
3.
Step 3
The longer a trendline stays in tact, the harder it will be for price to break below the trendline. However, trendlines do break so it is important to place a stop loss somewhere below the trendline. Technical analysis is not an exact science, and price will somtimes briefly dip below the trendline before regaining the trendline so it's important not to get stopped out. I would recommend placing a stop 1/2% to 1% below the trendline. Be sure to move your stop up accordingly as price moves higher.
4.
Step 4
Once your buy order is entered, and your stop loss is set, it's time to decide when to take profit. When a stock breaks below a trendline and then finds support at a previous rising trendline, it is common for the price to retrace and backtest the most recent trendline. This makes it easy to determine when to take profit. Notice on the chart, the stock backtested the trendline twice before moving lower. I have circled these two spots in yellow where you should take profit and begin searching for the next trading opportunity.
Step 1
When a stock is in an uptrend, it will find support off of its rising trendline. Once a stock has broken its rising trendline it will fall back to its next level of support. Find the next rising trendline where the stock is likely to retrace to by drawing a line through previous lower highs and lower lows. The stock price will most likely trade back to this rising trendline level, as it will represent stronger support then the previous uptrend. On the chart, I have drawn a white trendline that was broken and price moved back to the next rising trendline drawn in yellow.
2.
Step 2
Watch for the next trendline to hold as support. Allow a couple of candlesticks to form to confirm that this trendline is holding. Enter a buy order close to the trendline support level for the best price. On the chart I have circled the area in Red that would be a great time to enter a trade.
3.
Step 3
The longer a trendline stays in tact, the harder it will be for price to break below the trendline. However, trendlines do break so it is important to place a stop loss somewhere below the trendline. Technical analysis is not an exact science, and price will somtimes briefly dip below the trendline before regaining the trendline so it's important not to get stopped out. I would recommend placing a stop 1/2% to 1% below the trendline. Be sure to move your stop up accordingly as price moves higher.
4.
Step 4
Once your buy order is entered, and your stop loss is set, it's time to decide when to take profit. When a stock breaks below a trendline and then finds support at a previous rising trendline, it is common for the price to retrace and backtest the most recent trendline. This makes it easy to determine when to take profit. Notice on the chart, the stock backtested the trendline twice before moving lower. I have circled these two spots in yellow where you should take profit and begin searching for the next trading opportunity.
..................................................................................................
0 comments:
Post a Comment