Chapter 2

Trend, Support & Resistance

Once you can read a single candle, the next skill is reading many of them together. Price rarely moves at random for long — it tends to travel in directions and to pause at certain levels. Trend, support, and resistance are the vocabulary for describing that structure.

Sources: Understanding Support and Resistance (CFI), What Is Support and Resistance? (Fidelity)

In this chapter
  • The three states price can be in: uptrend, downtrend, and range (sideways).
  • How to identify a trend from its sequence of swing highs and swing lows — higher highs and higher lows, or lower highs and lower lows.
  • How to draw a trendline, and how support and resistance levels work — including the way a broken level reverses its role.

What a trend is

A trend is simply the general direction price is moving over a chosen timeframe. There are three possibilities. In an uptrend, price is broadly climbing. In a downtrend, price is broadly falling. When it does neither — drifting sideways between a floor and a ceiling — it is in a range, also called a sideways or trading market.

The word "broadly" matters. Price never moves in a straight line; even a strong uptrend is full of small pullbacks. What makes it an uptrend is not that every candle rises, but that the overall path leans upward across the swings. Learning to see the direction through the noise is most of the work.

Higher highs and lower lows

There is a precise way to tell which state price is in, and it is worth internalising because everything later builds on it. Look at the swing points — the local peaks (swing highs) and local troughs (swing lows) that the zig-zag of price carves out.

An uptrend is a sequence of higher highs and higher lows: each peak tops the last, and each dip bottoms out above the previous dip. Buyers keep stepping in earlier and pushing further. A downtrend is the mirror image — lower highs and lower lows: each rally falls short of the last, and each drop undercuts the previous low. A range shows roughly equal highs and roughly equal lows, with no net progress in either direction.

An uptrend of higher highs and higher lows with a rising trendline A zig-zag price line rising from lower-left to upper-right, with each peak higher than the previous and each trough higher than the previous. A straight line connects the rising troughs as an uptrend line. higher low higher low higher high higher high uptrend line (support)
Figure 1. An uptrend: each swing high tops the last and each swing low sits above the last. Connecting the rising lows draws an uptrend line that acts as dynamic support.

Trendlines

A trendline turns that sequence of swings into a single straight line you can draw on the chart. In an uptrend you connect the rising swing lows; the line slopes up and acts as a moving floor beneath price — dynamic support. In a downtrend you connect the falling swing highs; the line slopes down and acts as a moving ceiling — dynamic resistance.

It takes at least two points to draw a line, but a trendline earns more trust each time price touches it and turns away, because that shows the market is respecting it. A trendline is a guide, not a guarantee: price can and does break through, and a decisive break is itself a signal that the trend may be changing.

Draw trendlines to fit the obvious swings, not to force a line through every candle. If you have to ignore several touches to make the line "work," it probably is not a real trendline.

Support and resistance

Where trendlines are sloped, support and resistance are usually horizontal — specific price levels that have mattered before.

Support is a price level where falling price has repeatedly stopped and turned back up, as if resting on a floor. It marks a zone where buyers have historically found the price attractive enough to step in. Resistance is the opposite: a level where rising price has repeatedly stalled and turned back down, as if bumping a ceiling — a zone where sellers have historically been willing to take profits or exit.

These levels are not magic numbers. They work because so many participants remember them and act around them — placing orders, taking profits, cutting losses at the same familiar prices. Support and resistance are best thought of as zones rather than exact lines; price often overshoots slightly before respecting them.

Role reversal

One of the most useful ideas in this whole chapter is role reversal (sometimes called the principle of polarity). When price decisively breaks through a level, that level tends to switch roles.

A resistance level that finally breaks — price pushing up through the old ceiling — often becomes new support: on the next pullback, price falls back to that former ceiling and bounces off it from above. Likewise, a support level that breaks down — price falling through the old floor — often becomes new resistance: a later rally rises back to that former floor and gets turned away.

Break a ceiling and it can become a floor; break a floor and it can become a ceiling. The level stays important — only its role flips. — Principle of polarity

The reason is psychological. Once a level is broken, the traders who bought or sold there re-anchor their expectations to it, and their collective behaviour on the retest is what makes the old level hold in its new role. Trend, trendlines, support, resistance, and role reversal together give you a structural map of a chart. In the next chapter we add two tools that help confirm what that map is telling you: volume and moving averages.