Step by Step Trend, support and resistance lines (updated)

Trend, support and resistance lines
Let's Begin with Trends : Your Best friend.
As we already know, technical analysis studies price charts in order to forecast future direction of prices. How does it work and what can this chart tell us? Let’s clarify this.

Let’s start with the first axiom of technical analysis – price moves in trends. The axiom meaning can be explained by the fact that price movements always have direction and continuing nature. The price may seem to move chaotically upward or downward in the chart. However, price movements have its direction, which is called trend.


Trend is a directional price movement with certain duration.

Looking at the picture above we can notice that despite price moves upward and downward the general direction of all movements is upward. Now let’s get a clear view of the types of trends. They fall into three types depending on direction and duration:


1. Duration:

a. Short-term trend lasts from several minutes to 2 weeks.

b. Intermediate trend may last from 2 weeks to half a year (6 months).

c. Long-term trend is a long-lasting price movement in one direction within several months or even years (from 6 months).

2. Direction:

a. Uptrend (bullish trend) is a price movement in which each next minimum is higher than previous one.

Up trend


A trend line can be defined as a line, which connects the minimums of uptrend.


b. Downtrend (bear trend) is a price movement in which each next maximum is lower than previous one.

Downtrend


A down trend line can be defined as a line, which connects the maximums of trend.


c. Sideways trend (flat) describes price movements without clear direction.

Sideways trend


Binary option trading is generally based on trends with the shortest duration or short-term trends. Therefore, there is no sense in searching for the trends lasting more than 30 minutes for short-term instruments in the form of binary options. It is due to the fact, that trading within one hour time frame is based on short tendencies which are not influenced by other continuing trends of longer time frames. It would be enough if you could define current tendency within 30 minute time frame and use it.

Thus, as you might have already known, a trend line is a line defining the direction of a trend. You will need two points to build a trend line – the closest minimums of ascendant tendency and the closest maximums of descendant tendency.


In order to see the borders of a tendency to a trend line we need to build another line parallel to the trend line, which is called a channel line. The channel line is built using one or two maximum points in an uptrend or using minimum points in a downtrend. That is the way a trend channel is formed.


You can see in the pictures that the channel lines cross the critical points of the tendency. The channel line in an uptrend is drawn along the candle shadows of the maximums and, conversely, in a downtrend, the channel line is drawn along the candle shadows of the tendency minimums. To make sure the line is drawn correctly it should be based at least on two points.


The main rule of trading in the trend channel is to buy in an uptrend and sell in the downtrend. Thus, we can see that the trend channel is essential to trade within the bounds of the existing tendency, which is limited by it.

There are also strength levels besides trend lines. A strength level is a price level in which a price movement stops or changes its direction. There two types of strength levels:


1. Resistance trend line – is a price level, which is prevented from increasing by the market participants. Simply put, if this level is reached, than everybody starts selling.

2. Support trend line – is the price level, which is prevented from decreasing by the market participants. Similarly, if this level is reached, than everybody starts buying.

Sales, Purchases


The following levels can be strength levels:

• Trend and channel lines;

• Historical level – maximum or minimum price values reached throughout the history of trading. That is to say, market remembers these levels for a long time and will immediately respond if the price reaches these levels.

• Psychological level – this level results from round price values. For example 16 000 or 16 500. As a rule this phenomena is caused by human psychology, as it is always easier to operate with round price values.

All those levels can represent resistance or support depending on whether the price is higher or lower than this level at the current moment.

Thus, we have learnt that the price movement always has its direction, which is possible to define and limit by the trend and channel lines. The duration of this movement can vary from several minutes to several months. There are also strength levels which can limit movement as well and market participants tend to make decisions basing on them. Later we are going to learn how we can use this knowledge from a practical point of view.

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Easy Technical Analysis of stocks and forex

Let's begin the game: Technical Analysis

To trade in the forex market successfully you should forecast price behavior on the chart. One of the instruments for this kind of job is technical analysis. Technical analysis is a method of price movement forecasting on the base of price movement history. Studying movement history where the price will go in future. As you may have guessed the main object of technical analysis is a currency rates history or price movement chart. The price movement chart is built on axes where the vertical axis shows a price and the horizontal axis shows time.

There are some price types where you can find some repeating patterns. If you have studied and remembered them you will be able to forecast charts based on building method and time intervals. At first let us review the difference of charts based on building method. The simplest one is a line chart which displays price changes in single prices connected with a line. These prices are fixed on the chart when time interval ends and each new price is connected by a line with a previous price. It looks as follows:

The following type is a bar chart. This chart is made of bars which show the price at the beginning of time interval (opening price), maximum and minimum prices within this period and the price at the end of time interval (closing price). Here is the example of price bars:

The bar chart looks as follows:

The third chart is a candlesticks chart. A candlesticks chart shows the same price information as a bar chart, but in prettier and easier format. All that because it is made of rectangles called as candlestick bars. Here is the example of candlestick bars:

Where a bear candle indicates the price falls, and a bull candle shows the price raises. A candlesticks chart will look as follows:

So as we see, there are three types of charts: line, bar and candlesticks charts. Also the charts are recognized according to time period: 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, a day, a week and a month. Time period is the time interval when price was fixed on the chart. For example, if time interval is 1 hour, on the chart we will see a bar or candle indicating price at the beginning of an hour, maximum and minimum prices within this hour and price at the end of an hour. Here is the example:

Changing intervals of the charts you can do analysis of price history on every time intervals.

Technical Analysis is what you need

So, what the technical analysis is? The technical analysis uses charts to study the price history and find patterns. To use the price movement history for analysis we need to know three rules (axioms) of technical analysis:

1) Price moves forward – price change is always forward, whether price raises or drops, and it has its period. This axiom is a basis of tendency (trend) analysis and has the following conclusions: a current direction of price movement in the market most probably will continue rather than stop; and price will be moving in one direction until it becomes flat.

2) History repeats – if the price level was reached before it can be reached again in future. The same goes to price behavior graphical models which can appear in future with the same results as in the past. Studying the history of these price movement patterns gives us an opportunity more likely to foresee the further movement direction;

3) Price considers everything – any event affecting on currency price (political, economic and natural) is included into the price and it raises or drops depending on positive or negative affect of this event.

So thanks to basic rules of the technical analysis we can more likely forecast the price movement, determine its direction and period of this direction. It is necessary to understand that the market does not always follow the patterns found in the price movement history. Such unusual situations may happen, but with each new experience the trader will be able to find more predictable situations and make more precise estimation. For this very reason you should understand that if you have less experience you will use the most visible and prominent price movement patterns better to receive a maximum result. Technical analysis is not a science but it is more likely an art. And if a beginning trader is more attentive and hardworking he has more chances to receive a desired result.


Please refer to Section to learn more about Technical Analysis

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Tweezers Candlestick Pattern for Trend Traders

Another strong reversal signal is a tweezers candlestick pattern. Tweezers are two candlesticks in reverse direction and having the same maximums or minimums: at descending tendency tweezers candlesticks have the same minimums and at ascending tendency they have the same maximums. Minimums and maximums of the tweezers can be the closing prices or candlestick shades. The candlesticks of formation can appear one by one or have the other candlesticks between them. This is a strong signal that can strengthen or be strengthened by the other candlestick formations.

A procedure after a signal appearance:

1) If you see the candlesticks with the same minimums or maximums on the chart be prepared for a reversal price movement;

2) After closing the candlestick having formed tweezers buy an option in the changed direction.

Buying a call after tweezers formation

Tweezers with bullish engulfing

As the tweezers formation gives a strong signal it is not necessary to wait for a confirmation especially if it forms at the levels of support or resistance. But if you are not sure as for a current market situation you can wait for a new candlestick and see its direction. A signal confirmation mostly helps you to save your profit.

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Pin-Bar or squat candlestick Pattern

Squat candlesticks often show a tendency reversal. Usually they tell about uncertainty of a current market direction. The squat candlesticks mostly appear at the price levels. There can be one or some such candlesticks. If you see a candlestick with a small body and long shade you should be prepared for the current tendency reversal.

A procedure after a signal appearance:

1) If you see a squat candlestick has appeared be prepared to open a deal;

2) A squat candlestick is followed by a new reversal candlestick;

3) After closing a new candlestick open a deal in its direction.



Buying a call after a squat candlestick

If you see a tendency continuation after appearance of the squat candlestick you should consider the signal to be canceled. As in a case of engulfing pattern we should wait for closing a new candlestick following the squat candlestick to confirm a reversal.

Remember there can be some squat candlesticks in a raw and all of them will signalize about market uncertainty. You can study many squat candlestick patterns from the books on candlestick analysis.

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Rebound from Line Pattern in IQOPTION explained

Rebound from Line Pattern in IQOPTION
A  simple pattern to assume the upcoming trend for a successful trading in iqoption.
The main aspect of this pattern is that we open a deal after a price movement reversal. A trading signal will be a candlestick having reached the level and failed to be closed outside it. A candlestick can touch the level by its shade or body. Breaking a strength level by a candlestick shade and closing inside the level shows that the price is not able to break out it. A signal confirmation will be a new candlestick following it and moving in a reverse direction.

A procedure after a signal appearance:

1) A candlestick was not able to be closed outside the level and touched it by its shade or body;

2) Wait for a confirmation – when the second candlestick bounces off the level;

3) Buy an option in the reverse direction.

Buying a put if the price bounces off a resistance level

Buying a call if the price bounces off a support level

Buying a call if the price bounces off an ascending trend line

Sell if the price bounces off an ascending channel line

Remember you can find many support and resistance levels on the chart but only the levels confirmed by the price will affect the price in future. To check a strength level is easy enough: you should review the price history and see how often the price stopped or reversed at this level. If the price “has not noticed” the level no need to consider it in your analysis.

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