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Trend Lines - How To Predict Breakout

Trend Lines are the most powerful technical analysis tools. They have existed in the markets for centuries and have proven themselves as a reliable trading tool. In this article you will learn how to predict a breakout of a trend line, in order to enter faster and earlier.

Despite being a reliable and consistent technical tool, trading trend lines is not so easy. A trader needs to identify the trend lines properly and to decide on a trading strategy. The most popular trading strategies are the bounce, and the breakout. While the bounce is a contrarian strategy, the breakout is a simpler one - that signals a trading signal when a trend line is broken - and a trade is entered in the direction of the breakout. Still, entering a trade at the breakout itself can be risky as price can retrace back. Trader that trades breakout needs a early alert of a breakout - and signals for the upcoming breakout will be now explained.

Breakout Sign #1: Strong Momentum
The first sign of a breakout is strong momentum. When price is advancing towards the trend line in bigger and faster candles, it may be a sign of a future breakout.

Breakout Sign #2: Rising Volume
A rising volume can be a strong sign of a breakout - rising volume indicates that the forces of the market are gaining strength and that the momentum is getting stronger. Volume preceeds price in its trends, therefore a rising volume can predict a rise in price - that will lead to the breakout of the trend line. A combination of a rising volume with rising momentum is a strong sign of a breakout and in such market environment it is recommended not to trade counter-trendline (bounce).

Breakout Sign #3: Lower Highs or Higher Lows
This is the last and final predicting sign of a trend line breakout. If the trend line is ascending, lower highs indicate that sellers are gaining strength and pushing prices lower - to a breakout downwards. The same is true with descending trend lines and higher lows. This is a very powerful sign that is also useful for support and resistance levels.

Article Source: http://www.articlesnatch.com

About the Author:
TrendLineX(TM) is a powerful indicator that trades trendlines automatically. It automatically calculates stop loss and signals exact buy and sell trades based on trend lines. Click here to start trading with it today!

Tags: trend lines

, indicator

, pullback

, bounce

, support

, resistance

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