Chapter 4 SUPPORT AND RESISTANCE TRENDLINES AND CHANNELS. There are two terms that define the peaks and troughs on the previous trough usually forms a support level. Support is a level below the market where buying pressure exceeds selling pressure and a decline is halted. | Chapter 4 SUPPORT AND RESISTANCE TRENDLINES AND CHANNELS There are two terms that define the peaks and troughs on the previous trough usually forms a support level. Support is a level below the market where buying pressure exceeds selling pressure and a decline is halted. Resistance is marked by a previous market peak. Resistance is a level above the market where selling pressure exceeds buying pressure and a rally is halted See Figure 4-1 . Support and resistance levels reverse roles once they are decisively broken. That is to say a broken support level under the market becomes a resistance level above the market. A broken resistance level over the market functions as support below the more recently the support or resistance level has been formed the more power it exerts on subsequent market action. This is because many of the trades that helped form those support and resistance levels have not been liquidated and are more likely to influence future trading decisions See Figure 4-2 . The trendline is perhaps the simplest and most valuable tool available to the up trendline is a straight line drawn up and to the right connecting successive rising market line is drawn in such a way that all of the price action Charting Made Easy 9 Figure 4-1 SUPPORT AND RESISTANCE Sun Microsystems SUNW An uptrend is marked by rising peaks and troughs. Each peak is called resistance each trough is called support. The uptrend is continued when a resistance peak is exceeded. Charts powered by MetaStock Figure 4-2. ROLE REVERSAL Sun Microsystems SUNW An example of role reversal. A broken resistance level usually becomes a new support level. In a downtrend a broken support level becomes resistance. Charts powered by MetaStock 10 Trade Secrets Figure 4-3. RISING TRENDLINE Sun Microsystems SUNW An example of a rising trendline. Up trendlines are drawn under rising lows. A valid trendline should be touched three times as shown here. Charts powered
