Forex Trendline Breakout Trading

1.  The Originating Point and Defining Points of trendlines.  The originating point of a trendline is the first fractal (swing hi/low) that your trendline touches.  The defining point is every other touch of the trendline which odes not close above or below it.

(Click the image below for a full sized image and description of originating points and defining points.)

2.  New primary trendlines are formed when fractals fail to make it to the original trendline.  These new trendlines do not negate the original trendline.  As you will see later, these original trendlines are quite useful when defining profit targets and assessing risk.

(Click the two images below for full sized images and descriptions of  new primary trendline development)

3.  We enter a limit order on a re-test after a confirmed break of the primary trendline.  The limit order is placed at the price at which the breakout candle crossed the trendline.  Stop loss order goes ten pips above/below the latest fractal.  Initial target goes to the latest defining point.

(Click the image below for a full sized image showing how to plan the trade on a trendline breakout)

4.  If all goes well, the market will re-test the price we selected for our limit order.  The initial target should be hit within four candles.  If it does not, it’s a good time to move your stop loss to break even, or to close the while trade.

(Click the image below for a full sized image detailing the trade plan execution)

I hope this primer gave you something to think about when making a trendline breakout trading plan.  When executed properly, and in a disciplined manner, trendline breakouts are extremely profitable.  They are simple, objective, and a great weapon to add to your trading armory.  I’ll add more detailed descriptions later, but this should get you started.

Good Luck!

Tim