Simplicity is significant. When viewing a price chart, what are the first things we notice?
Highs, Lows, and Slopes
As we begin to analyze a chart, note the major and highs. Like a magnet, these are price levels that price will gravitate toward and repel from over time. How price approaches these levels will give us insight into the likelihood of a continuation or reversal at the price level. A price level is resistance when above the price and support when below the price. The space between price levels is the range. The more times price interacts with the price levels that make up the range while remaining rangebound, the higher the likelihood that the eventual breakout from the range will result in price never returning to the former range. A relatively long amount of time spent rangebound is a sign that price has stabilized and is ready to continue or reverse the preceding move that brought it into the range. Oftentimes we notice resistance turned support or support turned resistance as price breaks through a price level. This would imply that one price level is losing its significance relative to the next price level, which may not yet be identified. In order to identify a price level that does not yet exist, we must turn to alternate charting methods.
Channeling is one way to incorporate price levels with the slope, i.e., a channel is a sloped range or an average rate of change with the expected deviation around the midpoint. Occasionally the price levels that make up a range are seemingly ignored in the case of a breakout. The next area of resistance or support can be identified by drawing a channel. A downward channel is formed by drawing a trendline that connects two major highs with a parallel line that passes through the major low separating major highs. An upward channel is formed by drawing a trendline that connects two major lows with a parallel line that passes through the major high separating major lows.
At every moment multiple ranges and channels exist simultaneously. Special attention is paid to price as it approaches the support or resistance of a channel, as we search for the formation of new price levels and ranges. There is also significance when trendlines and price levels intersect since the market must decide which force is stronger. At times price is not near an intersection but the timing of the intersection may prove important to changes in trend. When the price remains rangebound, the market is taking its time to organize its next move. Breaking through the support or resistance of a channel should alert us to consider a different or altered channel along with other metrics, such as moving averages.
Highs, Lows, and Slopes
As we begin to analyze a chart, note the major and highs. Like a magnet, these are price levels that price will gravitate toward and repel from over time. How price approaches these levels will give us insight into the likelihood of a continuation or reversal at the price level. A price level is resistance when above the price and support when below the price. The space between price levels is the range. The more times price interacts with the price levels that make up the range while remaining rangebound, the higher the likelihood that the eventual breakout from the range will result in price never returning to the former range. A relatively long amount of time spent rangebound is a sign that price has stabilized and is ready to continue or reverse the preceding move that brought it into the range. Oftentimes we notice resistance turned support or support turned resistance as price breaks through a price level. This would imply that one price level is losing its significance relative to the next price level, which may not yet be identified. In order to identify a price level that does not yet exist, we must turn to alternate charting methods.
Channeling is one way to incorporate price levels with the slope, i.e., a channel is a sloped range or an average rate of change with the expected deviation around the midpoint. Occasionally the price levels that make up a range are seemingly ignored in the case of a breakout. The next area of resistance or support can be identified by drawing a channel. A downward channel is formed by drawing a trendline that connects two major highs with a parallel line that passes through the major low separating major highs. An upward channel is formed by drawing a trendline that connects two major lows with a parallel line that passes through the major high separating major lows.
At every moment multiple ranges and channels exist simultaneously. Special attention is paid to price as it approaches the support or resistance of a channel, as we search for the formation of new price levels and ranges. There is also significance when trendlines and price levels intersect since the market must decide which force is stronger. At times price is not near an intersection but the timing of the intersection may prove important to changes in trend. When the price remains rangebound, the market is taking its time to organize its next move. Breaking through the support or resistance of a channel should alert us to consider a different or altered channel along with other metrics, such as moving averages.
