This tutorial focus on how to trade a trend line breakout and how to draw trend lines ,spotting trading opportunity and where to place stoploss.


The very first rule to draw a trend line is by connecting a minimum of two significant low or significant high. Once you witnessed the trend line breakout occurs the next step is to analyze how fierce/intensive the trend line broken. If the trend line is broken after a long consolidation with strong momentum then more likely that the trend is more likely to continue. Else if the trend line breakout is because of weak momentum and no strong price action then more likely the trade could whipsawed.

In the above example you can see that Infosys trendline had broken with a strong momentum from the peak so one can expect the down fall in INFY to continue for quite sometime.

And now comes the next question where to keep stop loss?

The answer is one can keep a stoploss in multiples of 14 day ATR. Usually it is preferred to take a stoploss of 1.5 times of ATR or 2 times of ATR. Let say current ATR (Average True Range) value is 25 then 1.5ATR = 37.5points and 2.5ATR = 50points as your sell stop.