Profiting from Market Trends: Simple Tools and Techniques for Mastering Trend Analysis

CHAPTER 6

Later Trend Reversal Warnings

Astute chartists watch for early warnings of an impending trend reversal, but they also recognize signs that may come later because an early warning won't always present itself. Listed in Table 6.1 are some signs that may be evident after an intermediate- or long-term trend has already begun to change direction. These later warnings are the focus of this chapter.

Table 6.1 Later Warnings of Potential Trend Reversal

Uptrend	Downtrend
Breakdown through Support	Breakout above Resistance
Break of Up (Support) Trendline	Break of Down (Resistance) Trendline
Breakdown below a Strong Moving Average	Breakout above a Strong Moving Average
Change in Direction of Peaks	Change in Direction of Bottoms

Some of the earlier warnings outlined in Chapter 5 come before a trend reversal even begins. For instance, when price is approaching a strong ceiling (uptrend) or floor (downtrend), or a trend accelerates, requiring a steeper trendline be drawn, the trend has not yet begun to reverse direction; but it may do so fairly soon.

Other early warnings may occur as the shift in trend direction is taking place. For example, if price is unable to surpass the prior peak, the uptrend may be setting up for a reversal. The key point of the early warnings is that they typically occur either before the trend has changed direction, or before it is significantly off its high (reversal of an uptrend) or up from its low (reversal of a downtrend).

The later warnings ...