I trade the forex markets. I can draw trendlines alright, but I want to know what is a valid confirmation of a trendline break? Some guys say a closing candle after the break, some people say 2 closing candles. Must I use other indicators with it? What do you guys say about it?
This is gonna sound “obvious”, but you kind of have to do your own due diligence here, nothing is definite – one way could work one time, and not the other.
No you don’t HAVE to use indicators, especially if you find your niche with trendlines. Usually if your trendline has held up very well (several touches over a long duration), breaks are a lot easier to spot. Usually good breaks are spotted after the market starts to consolidate within your lines. The safe bet is to wait for what I call a “significant” close beyond the line threshold. Again, this is different to different folks… it could be a specific amount, it could be two candles… also keep in mind the range on different time frames. Some people are quick on the trigger and enter very early, as soon as it crosses. Price loves to retrace, so you could see it move back in the trendline – which might discourage you – only to move back OUTSIDE of the trendline – which might discourage you again (IF you exited your position).
Find what works for you, practice, practice, practice. If you find an indicator that helps you SEE a break… then by all means, USE IT! For basic trendline analysis though (for me), I don’t find it necessary. Just be careful, and WATCH… trendlines are so subjective you could get burned if you’re drawing them all over the place.
At each sloping trendline and horizontal support and resistance line, there are armies of bulls and bears orders fighting on the line. Because most of us can place and cancel an order instantly if we are looking at the price action at that time, these orders an be reinforced or withdrawn almost instantly.
Just like in warfare. There is actually 3 parties involved. The bulls, the bears and the bystanders. In most cases, either the bulls are more than the bears so trends occurs. But there are more bystanders ready to help the side that is winning.
So most of the time it depends on the current trend and how strong is that line and how fierce is the bear/bulls charge. If it is a strong psychological line eg Big round numbers like 96 or 100 on the USD/JPY, then it will hold 2,3 to 10 pips behind the line because most defensive (breakout) would put line+spread so that their stop/loss won’t be triggered, while most offensive (ie counter trend or bounce) would place closer or even line-5,10,15 pips.
So if you see a line at lets say 99.80 and then there is a big line lets say 100 behind it. Then that 99.80 line would most likely fail because the bears most likely will fall back to the fortress at 100 and ambush any rash bulls. So in your word, one candle beyond 99.80 lets say at 99.81 may trigger the retreat, but at 100, it may not even scratch the line and once it rebounce a bit, eg 99.99 then all the EA, sidelined traders, automatic brokers may just step in and short. In this case, the line will hold.
But notice that when the bears pushed, it consume a fair bit of the bystanders power and may enticed the ambushing bears to come chase the bulls due to greed. IF the bulls are very determine and they push again to the 100 line, each time there would be more chances it will break the stronghold because bears become weaker, bulls more determine and more bystanders switch side and join the bulls.
Notice if you are a bear and short, lets say at 99.90, you would be placing your stop lost behind 100, lets say at 100.05 (a long order to cover short). If bulls managed to get past 100 and triggered all those landmines and that is why you notice a sudden spike once price action cross big trendlines because all the shorts became longs.
In summary, the ‘confirmation’ of the trendline breaks/bounce is the ‘spike’. The number of candles really depends on the momentum of the charge. You can use indicators such as MACD or MA crossovers but as they are lagging indicators, the spike would be over by the time they give signals…
bro im looking for trendline community you find one?