Constructing mechanical trendline breakout entries

Trendlines were studied exclusively for three months so every aspect of the method could be isolated, including when it worked and when it failed. Rule-based trading systems were favored over discretionary chart commentary because the complete procedure can be tested.

Why the two points become rules

Successful and failed trendline episodes were compared backward to extract the variables that differed, then written as explicit rules instead of leaving the two chart points arbitrary. In this article, mechanicalConstruction means drawing and trading the line from fixed pivot rules so point selection is not left to discretion.

Right-to-left supply and demand lines

A supplyLine is a resistance line drawn from right to left through the two most recent supply pivots. A supplyPivot is a session high that has a lower high on the session before and after, at a chosen magnitude. In the archive workflow, that resistance line is drawn right to left through the two latest highs that each sit between lower neighboring highs.

A demandLine is a support line drawn from right to left through the two most recent demand pivots. A demandPivot is a session low that has a higher low on the session before and after, at a chosen magnitude. The matching support line uses the two latest lows that each sit between higher neighboring lows.

Pivot magnitude as a length control

The pivotMagnitude setting is how many flanking sessions must confirm a pivot: one, two, or three days on each side. Raising the required number of lower highs or higher lows on each side of a pivot from one day to two or three lengthens the line while keeping selection mechanical. The one-day version was the preferred default.

Intraday entry instead of a closing break

An intradayEntry takes the signal during the session of the break instead of waiting for a closing print through the line. Intraday entry through the line was chosen over waiting for a closing break because a close confirmation can arrive after a large share of the subsequent move has already occurred.

Three breakout qualifiers

A breakoutQualifier is a prior-session close, opening, or measured demand or supply condition that must be true before an intraday line break is accepted as an entry.

A prior down close is treated as the first qualifier that allows buying an upside breach of a resistance line, on the premise that participants would then least expect strength.

A second qualifier accepts a long after an up close if the next session opens through the declining resistance line and then holds a few ticks above it.

A third qualifier requires an upside print beyond the prior close plus the smaller of yesterday's close-to-low range or the close two days earlier, and then a trade through the resistance line.

The same qualifiers under a demand line

The same three qualifiers apply to support-line breakdowns with the setups reversed.