The TD Line methodology also includes rules for exiting a trade executed on a trendline breakout. There are three situations for exiting a trade after a breakout of a TD Supply Line:
Exit if the bar after the breakout bar opens below the breakout price level.
Exit if the bar after the breakout bar opens below the close of the breakout bar and closes below the breakout price level.
Exit if the bar after the breakout bar fails to exceed the high of the breakout price bar.
There are three rules for exiting a short trade taken after a breakdown below a TD Demand Line:
Exit if the bar after the breakout bar opens above the breakout price level.
Exit if the bar after the breakout bar opens above the close of the breakout bar and closes above the breakout price level.
Exit if the bar after the breakout bar fails to trade below the low of the breakout price bar.
These rules are based on the expectation that there will be immediate follow through in the expected direction.
(Considering these rules are from a book for trading options, this makes sense. Options are a wasting asset. The longer you hold an option position, the less likely it will be profitable.)
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