How to define custom TraceListener in app.config

Try specifying an assembly too, like so:

<configuration>
    <system.diagnostics>
        <trace autoflush="true" indentsize="4">
            <listeners>
                <add name="TextListener" 
                    type="MyApp.Utils.FormattedTextWriterTraceListener, MyApp"
                    initializeData="trace.log" />
            <remove name="Default" />
            </listeners>
        </trace>
    </system.diagnostics>
</configuration>