Forex Trendline Trading – How Many Touches?

Whenever I talk to traders about trading trendline bounces or trendline breakouts, the question of touches comes up.  Traders need to know how many touches it takes to actually call the pattern a trendline.

Trendlines show a pattern of ascending or descending support and resistance, respectively.  I like to see at least three touches before I consider a trendline valid.  My reasoning is simple.  Two points don’t tell you anything except that there are two higher lows or two lower highs.  The third touch tells you that the trendline is valid and actionable.  If you want to trade a trendline bounce, you can watch price action around the trendline and place a trade on a confirmed pinbar, engulfing pattern, inside bar, or piercing pattern/DCC.  Just remember that if you are looking for a trnedline breakout, you really need to have at least three touches before you should consider the trendline valid.  The problem is one of market interest.  If the forces driving price movement are not looking at hte same trendline that you are, they may be looking at a different trendline that is slightly higher or lower than your analysis shows.

So, how many touches do we need to see before trading?  You can trade the third touch on a bounce, or the fourth touch on a breakout.  Either way, make sure that you are careful with your risk taking around trendlines.  There are many ways of reducing your risk.  I like to see a confluence of events before I place a trade.  Price action, trendline, key S/R, a valid fib, etc.  The more you have at a particular price, the better your odds of a winning trade.

Tim