Trendlines
The examples above show a constant level prevents an asset's price from moving higher or lower.
This static barrier is one of the most popular forms of support/resistance, but the price of financial
assets generally trends upward or downward, so it is not uncommon to see these price barriers change over time.
This is why the concepts of trending and trendlines are important when learning about support and resistance.When the market is trending to the upside, resistance levels are formed as the price action slows and starts to
move back toward the trendline. This occurs as a result of profit-taking or near-term uncertainty for a particular
issue or sector. The resulting price action undergoes a "plateau" effect, or a slight drop-off in stock price, creating a short-term top.Many traders will pay close attention to the price of a security as it falls toward the broader support
of the trendline because, historically, this has been an area that has prevented the price of the asset
from moving substantially lower. For example, as you can see from the Newmont Mining Corp (NEM)
chart below, a trendline can provide support for an asset for several years. In this case, notice how the
trendline propped up the price of Newmont's shares for an extended period of time.On the other hand, when the market is trending to the downside, traders will watch for a series of
declining peaks and will attempt to connect these peaks together with a trendline. When the price
approaches the trendline, most traders will watch for the asset to encounter selling pressure and may
consider entering a short position because this is an area that has pushed the price downward in the past.
The support/resistance of an identified level, whether discovered with a trendline or through any other method,
is deemed to be stronger the more times that the price has historically been unable to move beyond it.
Many technical traders will use their identified support and resistance levels to choose strategic entry/exit
points because these areas often represent the prices that are the most influential to an asset's direction
. Most traders are confident at these levels in the underlying value of the asset, so the volume generally
increases more than usual, making it much more difficult for traders to continue driving the price higher or lower.
How to trade a trendline
Wait for the price to break above the Trend Line.Wait for a higher low to form (this tells you the sellers have exhausted themselves)If the price breaks the swing high, the market is likely to reverse higher (the buyers are now in control)Once a trendline is established, traders would expect to see the price of the asset to continue to climb
until the price closes below the newly formed support. ... In this case, using the ascending trendline
as a guide of an expected move higher would result in a very profitable trade, as you can see below.Trendlines are simply diagonal lines that highlight a trend or price range. These lines follow the price
movement in an attempt to give traders a general sense of how high or low the price might go in a
given timeframe. When the price rises, the trendline rises accordingly. When the price falls, the trendline falls.
The examples above show a constant level prevents an asset's price from moving higher or lower.
This static barrier is one of the most popular forms of support/resistance, but the price of financial
assets generally trends upward or downward, so it is not uncommon to see these price barriers change over time.
This is why the concepts of trending and trendlines are important when learning about support and resistance.When the market is trending to the upside, resistance levels are formed as the price action slows and starts to
move back toward the trendline. This occurs as a result of profit-taking or near-term uncertainty for a particular
issue or sector. The resulting price action undergoes a "plateau" effect, or a slight drop-off in stock price, creating a short-term top.Many traders will pay close attention to the price of a security as it falls toward the broader support
of the trendline because, historically, this has been an area that has prevented the price of the asset
from moving substantially lower. For example, as you can see from the Newmont Mining Corp (NEM)
chart below, a trendline can provide support for an asset for several years. In this case, notice how the
trendline propped up the price of Newmont's shares for an extended period of time.On the other hand, when the market is trending to the downside, traders will watch for a series of
declining peaks and will attempt to connect these peaks together with a trendline. When the price
approaches the trendline, most traders will watch for the asset to encounter selling pressure and may
consider entering a short position because this is an area that has pushed the price downward in the past.
The support/resistance of an identified level, whether discovered with a trendline or through any other method,
is deemed to be stronger the more times that the price has historically been unable to move beyond it.
Many technical traders will use their identified support and resistance levels to choose strategic entry/exit
points because these areas often represent the prices that are the most influential to an asset's direction
. Most traders are confident at these levels in the underlying value of the asset, so the volume generally
increases more than usual, making it much more difficult for traders to continue driving the price higher or lower.
How to trade a trendline
Wait for the price to break above the Trend Line.Wait for a higher low to form (this tells you the sellers have exhausted themselves)If the price breaks the swing high, the market is likely to reverse higher (the buyers are now in control)Once a trendline is established, traders would expect to see the price of the asset to continue to climb
until the price closes below the newly formed support. ... In this case, using the ascending trendline
as a guide of an expected move higher would result in a very profitable trade, as you can see below.Trendlines are simply diagonal lines that highlight a trend or price range. These lines follow the price
movement in an attempt to give traders a general sense of how high or low the price might go in a
given timeframe. When the price rises, the trendline rises accordingly. When the price falls, the trendline falls.