Broken Trend Line Strategy
The broken trend line strategy is built on the old idea that “the trend is your friend” — a phrase you have probably heard many times since you started learning to trade the financial markets. In this article we explain a strategy that relies mainly on the trend line: a popular trend-based approach we can call the broken trend line strategy.
Broken Trend Line Strategy
Strategy requirements
The first thing you need for this strategy is a trend line, as the name suggests. On top of that you need two exponential moving averages:
- Exponential moving average EMA 9
- Exponential moving average EMA 30
You will also need the Momentum indicator.
Read also: Learn the best Moving Average settings.
Timeframe used in the broken trend line strategy
You can use any of the various timeframes with this strategy, starting from the 15-minute chart. There is one condition on whichever timeframe you choose: when you draw the trend line, the period from its start to its end should span more than one trading day.
The reason is that a trend line becomes stronger as the timeframe grows, and this condition helps you avoid errors that can occur on short timeframes.
Read also: The correct way to draw a trend line.
How the broken trend line strategy works
Now we reach the most important part of the article: how to apply the broken trend line strategy. We will break it into steps to make it easier to follow.
1- Add the indicators and draw the trend line on the chart
The first step is to prepare the tools and indicators we will use. Add the Momentum indicator, along with the moving averages mentioned above — the 9 moving average and the 30 moving average. See the figure below.
In the figure above you can see that we added the required indicators and drew the rising trend line. Note that the trend line should rest on at least three points.
You can also see that the period from the start of the trend to its end is more than one day, since we are using the 1-hour timeframe.
2- Wait for the moving averages to cross
Once the tools are ready, the rest becomes easier. We wait for a signal that the trend line is about to break — the crossover of the moving averages. From the context, this crossover should occur before the trend line is broken, as shown in the figure below.
The crossover should also not be too far from the trend line.
3- Breaking the trend line
After the first condition is met — the moving averages crossing — the trend line will soon break, which acts as a second signal to enter a sell trade. See the figure below.
In the figure above you can see that the price broke the trend line cleanly after the moving averages finished crossing.
4- Entering a sell trade
Some traders rush to open sell trades as soon as the trend line is breached, but this is not a good idea, because breaking the trend line does not necessarily mean the direction has changed. It is better to wait for a retest of the trend line, or at least a signal from the Momentum indicator. See the figure below.
In the figure above you can see that the price retested the trend line and could have resumed its rise; even so, we did not enter a sell trade, because the signal had not yet come from the Momentum indicator.
We need the Momentum indicator to cross the 100 line, as shown in the figure above. You can see that the price then began to fall in earnest.
Read also: The concept of momentum in the forex market — what are momentum indicators.
Setting the take-profit and stop-loss
Now we reach the final part of the article: setting the stop-loss and the take-profit. For the stop-loss, it will be at the highest point the price reached, which will usually be just above the trend line.
The take-profit levels are set at the points the trend line rests on, in order. See the figure below.
In the figure above you can see that the stop-loss was at the highest peak the price reached, and the take-profit at the points the trend line rests on.
The broken trend line strategy comes from drawing price trend lines on the chart, one of the easiest ways for technical traders to get a quick read on an asset’s direction.
At the same time, trend lines can take various forms and differ in length and importance, and this is one of the simplest strategies to use when trading technical signals based on support and resistance zones.
Read also:
- Easiest currency strategy
- Forex strategy: moving average crossover
- Best scalping strategy 2026
[AFF-CTA: pending]
Risk disclaimer: This article is for educational purposes only and is not investment advice. Trading forex and CFDs on margin carries a high level of risk and can result in the loss of all your capital; leverage magnifies both gains and losses. Technical strategies such as the broken trend line approach describe what indicators show — they do not guarantee outcomes, and signals can fail. Do your own research and only trade with money you can afford to lose. Some links on this site may be affiliate links.
التعليقات مغلقة.