Trend line bounces are defined as the price moving towards a trend line, touching the trend line, and then reversing its direction and moving away from the trend line. Trend line bounces happen because trend lines show where the price is likely to experience support or resistance in the future.
Trading Trend Line Bounces
Trend line bounces are trend continuation trades, because they expect the price to continue in its previous direction. For an upward trend line (and an upward trend), a trend line bounce would be a long trade, where the trader buys at a price near the trend line, and then sells at a price above the trend line. For a downward trend line (and therefore a downward trend), a trend line bounce would be a short trade, where the trader sells at a price near the trend line, and then buys at a price below the trend line.
Trend line bounces are not usually traded independently, but are combined with other trading information, such as price movement or volume information. For example, a complete trend line trading system might consist of a trend line bounce in combination with a price reversal pattern.
Example Trend Line Bounce
The example chart shows an upward trend, and its associated upward trend line, with a trend line bounce shown in yellow (view the chart in full size).
