Know when the trend has reversed
Technical Analyst are always identifying trend reversals and trying to getting into trade early so that they can ride the trend until there is enough evidence that the trend has reversed.
Trendlines are easy to trade and very easy to identify too. In the beginners section we discussed trendlines but maybe we can show you how you can trade trends and get some profits.
Always beginning by the highest peak or lowest trough. A down trendline is constructed by joining all the declining peaks. Here is a real life market example.
As you can see all we did was join the peaks. The high on point A joined with peak B a nice trend line could have been drawn. The line is then extended, and when the price breaks above the line, a buy signal is triggered.
Your entry point should have been triggered where the red arrow is. Once the downtrend was broken a bit of price support is evident at $3.00. Your stop loss should have been 2 cents below the psychological price point of $3.00 dollars.
Please don't try to draw downtrends with only one peak because this is not accurate. Let us show you a bad drawn line. Here is an example of how you should NOT draw you trend lines.
The line drawn above is not a valid trendline because it does not touch any peaks. The same applies for uptrends. To draw an uptrend line connect the final low (A) to the first low (B). Let's assume you were able to identify the uptrend on the chart below your trade would have been finished as the price dropped below the trend line in late November point (C). In this scenario an announcement came out on the press that there was a potential bidder for this stock. There is just nothing you can do about this. A sell signal should have been triggered when the price broke the trend line. Remember that there are so many trends just like this on the market, trends reverse sooner or later so it is best to protect your profits and trading capital.