Thursday, April 5, 2012

Trading a broken trend

Once the price moves many bars beyond the trendline, the trend should be declared broken. When the market touches a live trendline, it reacts like it touched a live wire (b12,b15). When the market closes below the ema in one leg and stays below it and well beyond the trendline, the trend is likely over.

A broken trade is inherently hard to trade since its not really a reversal and its not really a pullback. When the original trend is strong, there is a possibility that the market will present a slow channel moving in the same direction as the original trend. Occasionally such as today, the channel may be in the opposite direction.

These channels are inherently hard to trade and most moves would take a really long time to give a 2 point profit. The right way to trade them is to realize that channels are wedges and wait for three pushes (b29,40,54) before trading against the channel. The best option is to wait for a test of the prior extreme or wait for a new breakout and enter on a pullback.


  1. Hi Cad,

    could be b5 and b9 considered as OR or due to strong b3,b4 and shaved b7,b8 should be trade skipped and then when OR didnt work could be taken b14 as 2L PB?

    Thank you very much for your reply!

    1. We already had an OR at low of prior day at b2 which led to a strong trend move. The close of the prior day did attempt to reverse twice, failed and the move continued.

      From a trading perspective, b5 and b9 were poor signals (doji/overlap) and was a lower probability trade. when a strong trend setups from a point of support (L of prior), chances are high that it would continue.