# How to play 45 degree trendlines

By: definedge

How to play 45 degree line breakouts. Explained in 3 simple steps via examples.

Trendline is one of the basic tools of Technical analysis. There are different methods of analysing it and trendline breakout is a popular method of picking up the stocks. This post explains the simple technique of finding the stocks and trading opportunities using P&F trendlines.

Trendline

We draw the trendline on a chart by connecting minimum two price points. The angle of the trendline depends on the price spots elected by the user hence it is known as subjective lines. These lines can be plotted on Point & Figure charts as well to analyse the trend. But P&F has got a major advantage of 45 degree angle lines, it is one of the most useful tools of Point & Figure world.

45 degree trendlines are also known as objective lines because angle of the line is certain. That means unlike subjective lines, it needs just one price point to draw it.

When 45 degree line is drawn on a square, it divides it in two equal parts.

45 degree lines from top & bottoms

Point & Figure charts are drawn on a square sheet hence 45 degree lines drawn on them can become useful tool in determining the trend.

45 degree lines from top & bottoms

Up-sloping line is a bullish line and Down-slopping is a bearish 45 degree angle line. Bullish lines are always drawn from the bottom of column of O and bearish lines are always drawn from top of the column of X.

Because P&F charts are drawn on squaresheet, if a square is drawn from the point where 45 degree line is drawn on it will help us in analysing the trend.

Importance of 45 degree lines

Understand that, number of Xs has to be more than number of Os in order to maintain 45 degree bullish line. In other words, price has to rise more than it falls to remain above the 45 degree line from the point where it is drawn. Hence it shows the strength of the trend and the bottom from which the line is drawn. Similarly, price has to fall more than it rises to remain below 45 degree line.

How to draw 45 degree line in TradePoint

Select 'Trendline 45 degree' from tool menu or symbol in chart window and click on the column to draw the line. If column is of X, bearish line will be drawn from the top of it and if it is a column of O, bullish will be drawn from the bottom of it.

From which columns should it be drawn

There are many methods of trading 45 degree trend lines. Primarily, it is a significant trend identification tool. There is a technique to draw it from important tops and bottoms to trail the trend and filter the patterns. But it needs more understanding of the subject and little practice. This post explains simple method of finding interesting breakouts with the help of 45 degree trend line.

Method of identifying the breakouts

Below is the method of identifying the breakouts in three simple steps.

Step 1

Open any Point & Figure chart, and spot the major/important/significant tops and bottoms that can be unarguably be identified by the eye. It should be very simple to do that because we are talking about tops and bottoms which are already in place and can be seen in any chart easily. Refer chart image of Tata motors shown below.

Importance of 45 degree lines

Point A and C are major bottoms and point B is a major top. You can mark any significant top or bottom that you can see immediately at the left of the chart.

Step 2

Plot 45 degree trend line from these tops and bottoms. Select 45 degree trend line and click on that column to draw the line, bearish line will be drawn from the top of the column of X and bullish line will be drawn from the bottom of O.

Importance of 45 degree lines

In the above chart, bullish lines are drawn from significant bottoms at point A and C and bearish line is drawn from significant top at point B.

Breakout is a point where price has crossed the trend line. Normally, there should be one trend line active on a P&F chart. Meaning, if bullish line is broken then bearish line should be drawn from the immediate top and vice versa.

Below is a chart of BHEL showing 45 degree trendlines drawn from important tops and bottoms.

Importance of 45 degree lines

Step 3

When the trendline is broken, refer the pattern to identify the trading oppotunity. Even the basic P&F patterns will do.

Importance of 45 degree lines

Have a look at chart of CESC shown above. Point A is when price has crossed above trendline but there was not even a basic buy signal. Point B also failed to generate any price pattern though price went above trendline. Point C also failed to generate any signal. Point D is where basic bullish signal was triggered above the trendline hence it becomes the point to refer.

Although knowing various P&F patterns will help more, even understanding of basic signals would make one recognise the trading opportunity using this method. Click here to read about P&F basic signals.

It is a bullish breakout when price breaches the 45 degree angle line drawn the significant top. Bullish trendline is drawn from recent bottom once that happens and bullish patterns should be referred till price maintains the bullish 45 degree line. Same way, bearish patterns should be referred when price falls below the bullish line and maintains the bearish 45 degree line.

Below is a chart of PFC showing the 45 degree trendline breakout from significant top along with bullish pattern.

45 degree lines from top & bottoms

Though we are playing 45 degree trendline breakouts with this method, I recommend trading patterns because they help us in assuring follow-through besides they come with certain exit method, that help us in managing risk. Get out when pattern fails and re-enter upon next pattern if price is maintaining the trendline.

Below is a chart of Jain irrigation showing the breakout from 45 degree line. Point A is when pattern after breakout got failed, and point B is where it worked really well. P&F trend riding technique helps in capturing the momentum.

45 degree lines from top & bottoms

Below is a P&F chart of Federal bank. Price is maintaining the 40 months bullish trendline. A bearish line is drawn from significant top that shows the breakout along with pattern.

Importance of 45 degree lines

One more example

45 degree lines from top & bottoms

Objective trend line drawn from significant tops and bottoms shows that Xs (bulls) are attempting to overcome the print of Os (bears).

This method is applicable on all time frames, instruments and box values. Below is a chart of Andhra bank showing bearish trend line and pattern breakout on 0.25% chart.

Importance of 45 degree lines

Current charts

Below are few current chart images showing 45 degree objective lines drawn from significant tops and bottoms.

Below is a chart of ICIL showing that bearish trendline drawn from significant top is being tested. You know the third step now!

Importance of 45 degree lines

Below chart shows bullish and bearish trendlines in Cipla drawn from significant points. Both are being tested. Level of patterns can be easily found to give some recommendation like buy above xyz and sell below something etc, but understand the method. Recommendations are temporary, knowledge would be permanent.

Importance of 45 degree lines
Refer 1% x 3 P&F chart of Cummins India shown below. 40 months bullish line has been recently tested but pattern has not generated bearish signal. Similarly, 15 month bearish trend line is tested without bullish signal. I am keenly tracking the formations out there :)

Importance of 45 degree lines

With this method, we are playing 45 degree trendline breaks. Longer and tested the trendline, stronger the breakout. If there was a vertical move before breaching the line, there may be some exhaustion in the short term, pattern will help in filtration. Formation such as trap when that happens is more logical trading setup. One may want to assess Nifty setup and breadth line before initiating the trades.

Breakout after significant consolidation can be found with a multi-column formation, Click here to read about the same. Imagine you finding this setup along with multi-column breakout formation.

There are many methods of analysis using 45 degree lines including pullback methods. Bearish trendline breach formation is more effective using lower box value setups. But keep it simple initially, there is more to discuss on trendlines.

Please note that all charts on this post are only for educational purpose.

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