How to Trade Breakouts Using Trend Lines, Channels and Triangles

Just like breakouts on your face, the nice thing about breakout trading in forex is that opportunities are pretty easy to spot with the naked eye!

Unlike the former, you don’t even have to look in the mirror!

Once you start getting used to the signs of breakouts, you’ll be able to spot good potential trades fairly quickly.

Chart Patterns

By now you should be accustomed to looking at charts and recognizing familiar chart patterns that indicate a reversal breakout.

Here are just a few:

• Double Top/Bottom
• Head and Shoulders
• Triple Top/Bottom

For more information check out our lesson on chart patterns.

In addition to chart patterns, there are several tools and indicators you can use to supplement your case for a reversal breakout.

Trend Lines

The first way to spot a possible breakout is to draw trend lines on a chart.

To draw a trend line, you simply look at a chart and draw a line that goes with the current trend.

When drawing trend lines it is best if you can connect at least two tops or bottoms together. The more tops or bottoms that connect, the stronger the trend line.

So how can you use trend lines to your advantage? When the price approaches your trend line, only two things can happen.

1. The price could either bounce off the trend line and continue the trend.
2. The price could breakout through the trend line and cause a reversal.

We want to take advantage of that breakout!

Looking at the price is not enough however. This is where using one or more of the indicators mentioned earlier in this lesson could help you tremendously.

Notice that as EUR/USD broke the trend line MACD was showing bearish momentum.

Using this information we can safely say that the breakout will continue to push the euro down and as traders, we should short this pair.

Channels

Another way to spot breakout opportunities is to draw trend channels.

Drawing trend channels are almost the same as drawing trend lines except that after you draw a trend line you have to add the other side.

Channels are useful because you can spot breakouts on either direction of the trend.

The approach is similar to how we approach trend lines in that we wait for the price to reach one of the channel lines and look at the indicators to help us make our decision.

Notice that the MACD was showing strong bearish momentum as EUR/USD broke below the lower line of the trend channel. This would’ve been a good sign to go short!

Triangles

The third way you can spot breakout opportunities is by looking for triangles.

Ascending triangles usually breakout to the upside. So when you think of ascending triangles, think of breaking out on your forehead.

Descending triangles usually breakout to the downside. So when you think of descending triangles, think of breaking out on your chin.

Symmetrical triangles can break either to the upside or the downside. So when you think of symmetrical triangles, think of breaking out on both your chin and forehead.

“Why do you keep staring at my pimples?!”

Here’s a quick and disgusting memory tickler:

Ascending triangle = Forehead breakout

Descending triangle = Chin breakout

Symmetrical triangle = Forehead OR chin breakout

EWWWW!!!!

Gross eh? But we bet you’ll remember it!