It is a very useful trendline concept in which we can predict where the rally begins in certain situations.


 Case 1
fig 1

  • After an uptrend, the breaking of the third trendline signals the reversal of the trend.
  • Notice also that the broken trendlines 1 and 2 often become resistance levels.


Case 2
fig 2

  • After a downtrend, the breaking of the third trendline signals the reversal of the trend.
  • The previously broken trendlines often become support levels.


Key point:- Breaking of the third line is the valid trend reversal signal.




courtesy - The technical analysis by John J Murphy