Trading Trendline Breaks, Part 3 by Sylvain Vervoort
Previously, I discussed how
trendlines are plotted and
how they can be used. This
time, I am going to show you Abercombie & Fitch Co. (ANF).
The numbers here represent the labels
on the chart displayed in Figure 1:
1. There is a clear downtrend line
break. There is a buy signal generated
by the trendline break simulation
system (green up arrow) at
about the same level of the
trendline break. You open a long
position. Typically, you would set a
stop-loss just below the previous
2. The next trend is up.
3. In February the trend starts accelerating.
You could either go for
the red uptrend line at the beginning
of the acceleration or the
blue uptrend line that starts shortly
thereafter, which is even sharper.
Applying the trendline rules as
proposed in part II, you would,
however, end up trading along the
red uptrend line.
4. The end of the sharper uptrend
line is not important because you
would end up closing your position
at around the same price (the
blue exit sign), whether you are
following trendline 3 or 4.
5. The sharper uptrend line that initiates
from trendline 3.
6. The last top is a typical example of
a sharp move down at the top. In
such a scenario, you should wait a
couple of days before you start to
draw the downtrend. This is because
you want it to start from a
different bar than the high bar. When
this downtrend line is broken, you
can open a new long position.