Thursday, April 5, 2012

The trend lines, resistance and support

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The trend lines, resistance and support
In this article we will discuss a widespread, well-known key component of technical analysis. Why do you think technical analysis in particular, elements work so well for financial markets? Why do you think Fibonacci levels are generally followed to the letter? Because thousands and billions of traders and computer programs to trade using these elements. That everyone acts the same way at the same time … />

1. What are the trend lines?
The trend lines are lines that join Lows two or three or more of a graphic or Highs. The price rebounds when they intersect lines.If we speak of a trend line support, it joins two or more depressions on the map.
Whenever the firm price line, it will bounce and go up.A resistance line is just the opposite. He joined the Highs of a graph. In obtaining this line, bouncing and prices go down.A trend line can be straight or diagonal line.
Straight lines are strong resistance or support lines and show a flat market for an accumulation time. Diagonal trend lines suggest that we have a chart positive or negative depending on the trends that this is an upslope or downsloping line.
2. How can we draw trend lines?
Usually, these lines meet the extreme highs or lows on a chart. The price should never cross those lines! If a trend line is crossed, it becomes meaningless and the price goes beyond.
If the price through a trend line of resistance, it will go up a significant amount. After the price reach a new high, it will decrease until it meets the line of resistance that the former has now become a support line. The price will bounce several times on this line until, again, will break it.
It’s the same with trend lines of support.
It is quite easy to apply this information in commerce. A price that bounces off a line of resistance will determine the trader to go short with a stop loss placed above the resistance line. When the price bounce a support line operator will go along and set a stop loss below the line.
If the price break these trend lines, the operator must adjust to the new trend and to launch an operation accordingly, setting a stop loss on the other side of the broken trend line .
Let us study some examples:
1. The graph shows the period between 2000 and 2001 for the U.S. indices. In this case, the trend is one of accumulation, neutral.
After a period of positive trend, the price cuts through the support trend line, the market goes down until a new support line is formed and a new line up resistance. From this point forward, for nearly two years, the evolution of Dow fell between these trend lines. When the price meets the support line there is a reason to buy, and when the meat of the resistance line, sell … clear enough, righ?

2. This is a chart for the U.S. indices between 2002 and 2003. Following a “head and shoulders” pattern, the price breaks the trend line support and forms and the upward path. Trend will now have a new line of support and resistance to show the operator when to buy and when sell. After three bounces the trend line support, the price goes up and form an upward slope trend that will last for over a year.

3. In this example we have a series of minitrends forming a scale. The price goes up and then down. After the trendline support is broken that we should begin selling positions. Following the trend line resistance is broken, we should enter long positions.

1. You can see the usefulness of these trend lines are. Trendlines support and resistance are key elements in the trend analysis and provide useful information regarding the timing and how to make a transaction.
2. Methods of negotiation based solely on the trend lines of analysis can be found and can work very well. These methods can be harmoniously correlated with other methods of financial analysis resulting in a complete system of trade and financial RealIT comlex approach.
3. We often use these trend lines among various other methods analysis we will describe later.
Dharmik team


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