Tuesday, February 7, 2012
Trend termination (TT): TTR
We clearly know that when a trendline breaks, the trend is over. There could be a reversal if the break was strong and if not, a trading range. Often the trendline break is obvious even when a trendline is not drawn on the chart. For example, today, b46,47 broke the trendline decisively.
If you were holding a long position, when do you get out? You could wait for a test of the high and get out at b70, but you would need to hold for most of the day just to get a good price. You could also perhaps exit on any strong bar such as b50 or exit on the next L2 such as below b55. However, it does not save you much time.
Ideally, you would exit on the close of b24. How can you predict the trend move will not go much further for a while? A trend by definition should have mostly trend bars. When the bars turn into a TTR (b19-23), there is a good chance that the trend is nearing termination or at least a deep pullback. Any strong bar after it is a very attractive exit for someone who bought the reversal at b8.
Usually, there is a second chance if the move up was very strong (no deep pullbacks). You could also exit at the high of b24 or a tick below it and would be filled at b44.
Remember that trend termination is not reversal. Its just an indication that the best option is to exit your positions and wait for a fresh trend to break.