Understanding the Role of Trend Lines and Resistance Levels in Forex Technical Analysis

When investors want to analyze charts, they do so via the help of trend lines. Although we find the market moving in a zig-zag direction, we can draw points on the upper and lower portions of the peaks and troughs of price actions in a view to get lines. Although, this process have become simplified with the use of software/applications embedded on trading platforms.

If you wish to draw trendlines, there are two vital lines that are very important, while the third line would be for the confirmation of the contact point. When drawing trendlines, we must employ the peaks and the troughs. The lines have to be parallel and should be positioned on opposite sides of the channel. These trendlines are very vital in the analysis of current data in the currency market, thus yielding the precise price differences which can aid in determining the right currency to invest.

The lines that are found on the lower channels are called support lines while those on the upper channels are termed resistance lines. Every peak price does represent levels in the market where we find bullish and bearish pressures going over the roof. The selling pressure levels and that of buying pressure are represented by the troughs.

When price can no longer sustain itself, we see it retrace off the resistance and support levels, this is very vital when we find the trend under sustained pressure over time. During price actions, we discover that when the currency level bounces within a certain volume, there would be a significant increase in the trend.

When the levels get penetrated adequately, we could see the formation of new levels. An example is when we find a good support level, which can be penetrated with heavy volume. This eventually turns the level into a strong resistance level. On the other hand, a very high resistance level turns into a strong support level once it gets broken by heavy volume.

It is important to watch closely the trade channels, as they are important in making critical decisions pertaining to positions that exist or about to be terminated. Some of the rules to consider include;

-A channel is dependable if it exists for a long time

-Reliable channel have widths that are high, while those that are unreliable have steep channels.

-Volume levels do not affect support level as they could be broken.