Support, resistance, trend lines and channels

As a market trends, the high point it reaches before pulling back becomes resistance; as it resumes climbing, the low point reached before the next push higher becomes support. In a downtrend, the same logic runs in reverse.

Support and resistance are better thought of as zones than exact prices, shadows frequently "test" a level without truly breaking it, only for price to snap back. Because candlestick shadows can reflect exaggerated, momentary spikes, plotting support and resistance on a simpler line chart (which only shows closes) can give a cleaner read on the market's real intentions.

Two useful rules of thumb: once resistance is broken, it tends to become support (and vice versa); and the more times a level is tested without breaking, the stronger it's considered to be.

An uptrend line connects a series of rising support points (valleys); a downtrend line connects a series of falling resistance points (peaks). Drawn correctly, fitting the market rather than forcing the market to fit a preferred line, trend lines can be a genuinely reliable tool.

A channel is created by drawing a second line parallel to the trend line, touching the most recent opposite extreme (the most recent peak for an ascending channel, the most recent valley for a descending one). Traders often treat the lower channel line as a buying zone and the upper line as a selling zone.