Bitcoin Trendline Break - Trading Trend Line Bitcoin Reversal Signals on Charts

After the price of Bitcoin has moved in a certain direction for an extended period of time within a channel it reaches a point where price stops moving within the channel. When this happens we say that the trendline has been broken.

Since the trendline is the point of support or resistance then we expect the market to move towards the opposite direction after a trend line break. This is because the support or resistance level that the price has been moving along has now been broken. When this happens traders will close their open orders which they had bought or sold. This is known as taking profit.

Uptrend Reversal - Upward Trend Line Break

When price breaks an upwards trend line (support level) the market will then start to move down or start to consolidate at this level before moving down.

Upward Trendline Break

This reversal signal is considered to be complete with the formation of a lower high or a lower low - double tops chart pattern. This also provides a trading opportunity for traders who want to sell Bitcoin - to go short once the upward trend line is broken.

Downtrend Reversal - Downward Trend Line Break

When price breaks the downward trend-line (resistance level) market will then move up or start to consolidate at this level before moving up.

Downward Trendline Break

This reversal signal is considered to be complete with the formation of a higher low or higher high - double bottoms chart pattern. This also provides a trading opportunity for traders wanting to buy to go long once the downward trend line is broken.

NB: Sometimes when price breaks its trend line it might first of all consolidate before moving in the opposite direction. Either way it is always good to take profit when the market direction reverses or when the trend line breaks-out.

To trade this trend line reversal setup - as a trader once you open a new trade in direction of the trend reversal the price should immediately move in that direction, in a price break-out manner. This means that the market should immediately move in that direction without much of a resistance.

If on the other hand the market does not immediately move in direction of the price breakout then it is best to close out the trade because it means that the trend is still holding and current market direction might continue or at best a price consolidation pattern may form.

Another tip is to wait for the trend line to be broken and for the market to close above or below it so as to confirm this signal.

What happens is that most traders open trades waiting for a reversal even before the trend is broken, only for the price to touch this trend line and for the current market direction to hold and the Bitcoin prices to continue moving in the current market direction.

Therefore, when trading this trendline break reversal setup it is best to wait until the breakout has been confirmed by price closing above or below the trend line, depending on direction of the market.

• Upward Market Direction Reversal - this signal is confirmed once the market closes below this upward trendline, this should be the correct time to open a sell short trade, so as to avoid a whipsaw.
• Downward Market Direction Reversal - this signal is confirmed once the market closes above the downward trendline, this should be the correct time to open a buy long trade, so as to avoid a whipsaw.

Combining Reversal Signals with Double Tops or Double Bottoms Chart Patterns

A good trade setup to combine this trend line reversal signal with is the double tops and double bottoms chart patterns.

This double tops and double bottoms reversal chart pattern setup should already have formed before the trend-line break signal. Because these double tops and double bottoms are also trend reversal signals, then combining these two setups will give Bitcoin traders a good probability of avoiding whipsaws.

In the above chart examples these double tops and double bottoms chart pattern setups can be confirmed to have formed even before the trend line reversal signal appeared.

First Example of Upwards Trend Reversal - the Double tops chart pattern had already formed before trend break signal appeared on the Bitcoin price chart - this can be illustrated by the lower high just before the upwards trendline break.

Second Example of Downwards Trend Reversal - the Double bottoms chart pattern had already formed before trend break signal appeared on the Bitcoin trading chart - this can be illustrated by the higher low just before the downward trendline break.

Double Tops or Double Bottoms Combined with other Trend Line Reversal Signals