The breach of a trendline signifies that the trajectory of the trend's development has undergone a change. However, it is important to note that a breach does not necessarily indicate a trend reversal. Therefore, we need to close our existing positions and revise the trendline to follow the true trajectory of market development and trade in accordance with the trend.

What we commonly do is to close out our positions after the trend has been breached and then wait and see, which is a common operational move.

Additionally, once a trendline is breached, it becomes a support line or a resistance line. As we previously mentioned, once a trend is breached, the original support and resistance undergo a swap, and they can transform into each other. After an upward trendline is breached, it acts as resistance for the subsequent market movement.

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Similarly, after a downward trendline is breached, it provides support for the future market movement. This illustrates the interconvertibility of trendlines and the mutual transformation between support and resistance.

How do we identify false breakouts? What are the criteria for measuring false breakouts?

False breakouts of trendlines are a challenge when we operate using trendlines and are a common issue encountered in actual operations. I follow the trend and operate, and when it breaks out, I enter trades in the direction of the breakout. However, I did not expect it to turn downward and return to the original trend.

Generally, we consider a price that crosses the trendline but closes within the trendline as a false breakout. This means that the price penetrates above or below the trendline and then returns to its original path, and the closing price is not outside the trendline. At this point, it is considered a false breakout.

False breakouts cause significant confusion in our trading, leading to repeated taking of profits and repeated stop losses. Therefore, after a trend forms a breakout, it is particularly important to determine whether it is a true breakout or a false one.

Generally, the method I personally use in trading is to focus on an effective breakout. An effective breakout refers to the closing price being outside the trendline. If it returns within, then I consider that the price has not formed a true breakout.Additionally, in the actual trading process, I use time as a criterion. In the process of stock trading, a two-hour period is considered an effective breakout. In foreign exchange trading, we generally adopt a 20-minute period because the foreign exchange market tends to form a short-term back-and-forth movement, with a higher volatility and greater fluctuations than stocks.

Therefore, in the actual trading process, we consider the closing price as an important standard. Secondly, when using trend line breakouts, the original starting point—the beginning of the market trend—provides some assistance in judgment. The farther away it is from the trend, the more likely its breakout is a false one. Conversely, the closer the K-line is to the trend line, the more effective the breakout is. This is a common judgment we make in practice, a judgment of true or false trend breakouts.

How do we use trend lines, K-line combinations, moving averages, and indicators to judge the bottom?

Take stock trading as an example, how do we judge the bottom? There are several main conditions.

Firstly, the price changes from a downward trend to a horizontal range-bound consolidation, and during this consolidation, the price cannot break through the previous low. The moving averages begin to converge, and at this point, we consider this as one of the conditions for judging that this is a bottom.

Secondly, bullish K-line combinations appear at the previous low, such as the "Morning Star," "Three Red Soldiers," or "Head and Shoulders Bottom" reversal patterns.

Thirdly, when the indicators MACD and KDJ show a divergence at the bottom.

Fourthly, a breakout is formed upwards, and a retest of the downward trend line occurs, meaning after the breakout, a retest of the downward trend line below does not break. The second golden cross of KDJ constitutes the buying point and entry timing. At this point, we believe this area could possibly be the bottom.

Additionally, how do we judge the top?The price trend shifts from an upward trajectory to a horizontal consolidation, with the price consistently failing to surpass the previous highs. The moving averages of the earlier peaks begin to converge, which is a condition to consider.

Additionally, bearish candlestick patterns appear at the previous highs, such as the "Evening Star," "Head and Shoulders Top," or "Three Black Crows," "Dark Cloud Cover," which are the types of top candlestick formations we discussed earlier. With these patterns, there is a high probability that a top may be forming.

Another indicator to watch is the divergence at the top seen in the MACD and KDJ indicators on the chart. At this point, caution is advised as it may signal a top.

Furthermore, after the K-line flattens during the upward movement and then breaks downward through my upward trend line, if the rebound fails to rise above the upward trend line and my KDJ forms a death cross for the second time, it constitutes our selling point and a time to reduce our position. These are several conditions we use to identify a top.

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