The concept of trend lines, support and resistance
Today, I am going to explain the concept of trend lines, support and resistance.
Above is the weekly chart of the EUR/USD, period between 2017 and 2022.
The resistance or support level is where the price gets rejected at least twice. After that, traders can draw a line connecting those swing highs/lows, which later turn to be the resistance or support. This line can be horizontal or sloping, thus called trend line.
A trend line connecting 2 lower highs or more is called descending and considered a resistance.
A trend line connecting 2 higher lows or more is called ascending and considered support.
Broken resistance becomes a support level and vice versa.
Let's take the example chart above and explain the drawings for a better understanding:
1) In January 2017, EUR/USD bottomed at 1.0350 and has been trading above that level since then, until 2022. In the current year, the pair tested the mentioned price more than twice and bounced again. But eventually, sellers were able to break through this support, which later on in July, turned to be a resistance. Buyers tried to break through that level but failed to do so, and the price kept on going further down.
2) During the pandemic in March 2020, demand for safe assets surged, causing the Euro to trade as low as 1.0630 where buyers were met and made a quick rebound. In 2022, the Russia-Ukraine war has put a huge pressure on the EUR/USD, resulting in a strong bearish move. Sellers were able to break the 1.0630 level successfully, which later turned to a resistance level.
3) I highlighted the main 3 parallel trend lines/channels throughout the 2018-2022 period
1: A very clear lower highs/lower lows pattern indicating a bearish trend.
2: Once the 1.0630 support was met, buyers were able to create a higher highs/higher lows pattern indicating a bullish trend reversal.
3: However, in summer 2021, the pattern was broken and we started to notice trend exhaustion indicated by a failure to make higher highs and the market entered a bearish trend again inside a descending channel till present.
I hope the drawings and explanations are clear. Will be happy to answer any question.
Thank you
Above is the weekly chart of the EUR/USD, period between 2017 and 2022.
The resistance or support level is where the price gets rejected at least twice. After that, traders can draw a line connecting those swing highs/lows, which later turn to be the resistance or support. This line can be horizontal or sloping, thus called trend line.
A trend line connecting 2 lower highs or more is called descending and considered a resistance.
A trend line connecting 2 higher lows or more is called ascending and considered support.
Broken resistance becomes a support level and vice versa.
Let's take the example chart above and explain the drawings for a better understanding:
1) In January 2017, EUR/USD bottomed at 1.0350 and has been trading above that level since then, until 2022. In the current year, the pair tested the mentioned price more than twice and bounced again. But eventually, sellers were able to break through this support, which later on in July, turned to be a resistance. Buyers tried to break through that level but failed to do so, and the price kept on going further down.
2) During the pandemic in March 2020, demand for safe assets surged, causing the Euro to trade as low as 1.0630 where buyers were met and made a quick rebound. In 2022, the Russia-Ukraine war has put a huge pressure on the EUR/USD, resulting in a strong bearish move. Sellers were able to break the 1.0630 level successfully, which later turned to a resistance level.
3) I highlighted the main 3 parallel trend lines/channels throughout the 2018-2022 period
1: A very clear lower highs/lower lows pattern indicating a bearish trend.
2: Once the 1.0630 support was met, buyers were able to create a higher highs/higher lows pattern indicating a bullish trend reversal.
3: However, in summer 2021, the pattern was broken and we started to notice trend exhaustion indicated by a failure to make higher highs and the market entered a bearish trend again inside a descending channel till present.
I hope the drawings and explanations are clear. Will be happy to answer any question.
Thank you
Ramzi Abou Abdallah, CFTe, CMT
♦️ Subscribe to my telegram channel for daily signals for free, link below:
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♦️ Subscribe to my telegram channel for daily signals for free, link below:
♦️ t.me/accu_trading