Do trendline breaks really have any significance? | Forex Factory

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Do trendline breaks really have any significance?

  • #1
  • First Post: Mar 16, 2016 6:38am Mar 16, 2016 6:38am
I'm currently struggling to understand the logic behind the concept that 'a broken trendline may indicate the end of a trend'.
The way I see it, price movement is not linear, and there's no economic reason why the break of some linear line may suggest that the associated trend is more likely to end (unless it's just a self fulfilling prophesy?). In addition to this, it's possible to redraw trendlines (which are just as valid) so that price has or hasn't crossed it.

I agree with the logic behind drawing horizontal lines on a chart to represent potential levels of supply and demand, but the logic behind trendlines seems redundant. Can anyone supply an argument to prove me wrong?
  • #2
  • Mar 16, 2016 6:44am Mar 16, 2016 6:44am
Alternatively, I understand that the gradient of a straight line between 2 points is equal to the average gradient of price between these points. By this logic, we may assume that deviation from the trendline implies a change in the average gradient of the trend. As an extension of this, we may say that a broken (bullish) trendline implies that the average gradient of the uptrend has decreased. This may translate to a weakening trend, I suppose.

This is the only logical interpretation of trendlines that I can think of, but it still feels rather bullshitty...
  • #3
  • Mar 16, 2016 4:55pm Mar 16, 2016 4:55pm
Firstly, understand what a trend break really is, and understand that it is only applicable to the chart t/f you are studying.... it has no relevance to any other t/f other than the one you are looking at in other words.

Also understand that a minimum of 2 point are obviously needed from which a t/l can be constructed....now then, consider what 2 points (at least) would be best for any given t/f.

It should occur to you now that the first point is easy to know, but the 2nd point is where the majority struggle to determine. where it is, and hence struggle to construct the correct t/l in the first place.

Once you have figured out where the correct t/l should be constructed via the 2 points, then you will have a proper line, which if broken can then be considered a t/l break and only then becomes confidently tradeable.

I have seen many try, using multiple lines, this that and the other, and inevitably, if you draw enough lines on a chart, then of course one of those lines is bound to be correct.

Ponder what I've said carefully, and you should then be able to put a meaningful broken trend-line plan into place of your own.

LL
  • #4
  • Mar 17, 2016 5:51am Mar 17, 2016 5:51am
Quoting Ponzi Jr
I'm currently struggling to understand the logic behind the concept that 'a broken trendline may indicate the end of a trend'. The way I see it, price movement is not linear, and there's no economic reason why the break of some linear line may suggest that the associated trend is more likely to end (unless it's just a self fulfilling prophesy?). In addition to this, it's possible to redraw trendlines (which are just as valid) so that price has or hasn't crossed it. I agree with the logic behind drawing horizontal lines on a chart to represent potential...
If you accept trends exist, then you also accept a trend has to end at some point. If a trend ends, what determines it? Price alone? Or price and time?
  • #5
  • Mar 20, 2016 10:35am Mar 20, 2016 10:35am
Quoting triphop
{quote} If you accept trends exist, then you also accept a trend has to end at some point. If a trend ends, what determines it? Price alone? Or price and time?
Personally, I'd be tempted to say that it is price alone that determines a trend. For example, consider the following chart (GBP/USD, Daily):
Attached Image (click to enlarge)
Click to Enlarge Name: trend.PNG Size: 35 KB


Here, I'd argue that a downtrend began, following the peak circled. However, there is no linear trendline that accurately describes the way in which price is moving here.
I would consider this to be a down-trend because each consecutive peak is lower than the last. As such, I would describe this trend to be over when a peak forms, which is higher that the peak before it - for example, if price crossed the blue line. There is no reason (as far as I'm aware) to think that price trends should move linearly.
  • #6
  • Mar 20, 2016 2:54pm Mar 20, 2016 2:54pm
Your circled area is just a high, and has nothing to do with the current down trend. Trends start when they start, not at highs or lows. Here's a look at the GBP$:
Attached Image (click to enlarge)
Click to Enlarge Name: GBPUSD.gif Size: 48 KB
  • #7
  • Last Post: Mar 22, 2016 7:13am Mar 22, 2016 7:13am
Quoting Ponzi Jr
{quote} Personally, I'd be tempted to say that it is price alone that determines a trend. For example, consider the following chart (GBP/USD, Daily): {image} Here, I'd argue that a downtrend began, following the peak circled. However, there is no linear trendline that accurately describes the way in which price is moving here. I would consider this to be a down-trend because each consecutive peak is lower than the last. As such, I would describe this trend to be over when a peak forms, which is higher that the peak before it - for example, if price...
If you want to determine a trend against price only, what's your reference point?

The peaks, the higher highs and lower lows?

So in a downtrend when price forms a higher high against a previous, what's your filter? Any higher high? Or only against the most obvious (which are themselves determined, visually, by a higher speed move sandwiched between lower speeds)?

To be accurate, there is no *single* linear trendline no.
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