The same principle can be applied on a trendline bounce strategy. Using the trendline bounce as a buy signal instils some discipline into the decision-making process. The patient approach means that price entry point is optimised, and a stop loss can be applied that is just below the trendline. This trade entry point uses a strong trading signal to enter a position with a good risk-reward profile. In the example, the stop loss is set at 2% below the value of the index at entry, but the subsequent price rally represents a +15% gain and one that is still continuing and trading above the supporting trendline.

The answer to this question involves using trendlines on metrics other than price. The below chart incorporates volume as well as price data. The start of the price moves from A, to B, to C is marked by an uptick in trading volume. This is a sign that the move is well supported. Buyers and sellers are coming into the market in large numbers, as demonstrated by high volumes, and it is buyers who are prevailing, as demonstrated by price.




Trendline Breakout Trading Strategy