Sometimes “Old Man Trend” will try and fool you. Let’s use some common sense and see if we can stay on track. In the following diagram, in Example One, you will notice that the prices hit the trendline three times, and then it suddenly broke out of the trend one day (point #4 in Example One). What do you do? Is the trend broken? Do you redraw the trendline? The following diagram may help in your decision-making process.

The way that I suggest is to wait until the fourth or fifth “hit.” In Example Two below, the next hit would confirm that the trendline should be raised, and connected between points 1, 4, and 5. It would have been a breakout of the trendline shown for example one though. But the “new” trend is still down.

On the other hand, if the price did not rise (Example Three), then I would continue the trendline as it was in Example One and would consider point #4 where it broke out of the trend as a false breakout. I have a saying that when this happens it’s because the camel stuck his nose under the tent, didn’t like what he saw, and left. Yes, it’s corny but it sticks in your head doesn’t it?