NOTE*** This post is part of an ongoing project to update my “How I Pick Stocks” page on the sidebar to the left. For every new section/update that I make to the page, I will post addition here as a post as well as amend the page itself so that all the information can be read together.
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Trendlines should be an important tool for any serious trader. Again, I have to credit Bill over at Viper Speed Trader for really helping me learn how to implement them properly though. While trendlines CAN be a great tool, they have also been responsible for the downfall of many a trader who used them improperly.

You no doubt have heard that the more times a trendline is touched, the stronger it is and more powerful a correction will be once it is broken. However, it matters greatly exactly what KIND of touches we are referring to for in trading there exists both Good and Bad touches.

Good touches occur after corrections or pullbacks (see 610-tick chart in The Perfect Trendline Break Setup below for an example).
Bad touches refer to those that occure without any meaningful pullbacks, whereby you are merely connecting the corners of a pretty one-way move. (see the last chart below for an example)

So there are right ways to use trenlines and there are wrong ways. Below are some examples of both. Study them closely and note the distinction between them, I promise it will save you money.
 
 

What is important here is not just the Trendline- Break, but the convergence of forces occuring before and simultaneously with the break.

It is worth noting that the higher the timeframe chart that you are looking at, the more important, and less likely to fail, a break is. Breaks on a 55-tick chart fail all the time, as they are the first ones to move and not come back during a trend change so your stops get ripped through in no time when you are wrong. I will often note a 55-tick trendline break but, as with basically any and all indicators, will never trade based on it alone without some other confirming evidence.
 
 

Look at all the warning signs that indicate that you should NOT expect much from this trendline- break :

1.) It is a 55-tick chart, the most likely candidate for a failure
2.) $TICK hasn’t seen negative territory in almost an hour
3.) ER2 has already dropped 12 points in last 2.5 hours
4.) Deacreasing down volume, increasing up volume
5.) 15-minute bar closed above the high of the low bar (HOLB+)
 
 

If you can avoid falling into the trap of chasing these kinds of trendline-breaks, then you’ll save yourself money in the long run. “Useless” may be too strong of a word here because it is Usefull to know when these trendlines are broken for change cannot happen until they are. But what I mean by useless is to that they are insufficient criteria for even thinking about entering a long trade without a whole lotta convergence.