Resistance and support Types of trends
The trend shows the established direction of the price movement. The trend could be:
- Rising ;
- Side, when the market is also called “empty”.
As far as the market moves in all directions, not straight, but zigzag, the mutual position of the top and bottom point of these movements creates the trend at the market. The trends could also be classified in relation to their durations of the subdivisions of the major or prolonged secondary, or middle or minor and transitory.
In the limits of the major trend each quantity of the secondary or minor trends could have a place. The duration of each one changes in wide range. In accordance with the Dow Theory, a major trend is the trend which has established itself at the market for more than a year. The duration of the secondary trend could be estimated eventually for months, and at least for weeks.
Percentage limits for the price development
The price of the foreign currency, as well as at the other subjects at the financial market, even at the most powerful trends does not move constantly up and down. The traders follow the development – alteration of the prices direction in definite points of their drawing.
There are three types of points for potential development, marked on the drawing in % by the previous movement.
The development at Ch D happens traditionally, after the price has reduced with 1/3 (33%), ½ (50%) or 2/3 (66%) since the last rise. The development of the prices after 66% is considered to be a corrective of the trend.
In correspondence to the Fibonacci coefficients, the development takes places at points corresponding to0.382 (38.2%), o.5 (50%) and 0.618 (62%) since the last rise.
According to Han, the development up will take place after each 1/8 since the previous rise.
Lines of Trend
The line of trend is a natural result of the observations upon itself. It is a straight line, connecting the lowest and the highest points of the prices’ drawing. In accordance to the trend classification, the lines of the trend are classified as follows:
- rising ;
In order to draw the line of the trend, it is enough two points to exist, through which it passes and one more point for confirmation of the trend. In the trend limits, there is a direction and speed of movement, which is characterized with a steep currency drawing. The line of the trend exists until it is broken as a result of steep movement of the prices up and down. Still, even after break confirmation, after it most probably a period of consolidation will follow.
The steep alteration in the direction of the trend line is respectively rare. When there is a lack of consolidation, the longer it does not occur, the steeper the next development will become. The line of the trend and for example a parallel to it line, drawn at the opposite side of the drawing, form a trade canel. From this position the given two lines are called limits or canel lines.
Lines of resistance and support
The upper and the lower limit of the trade canal are called lines of resistance and support. The peak points lie on the price level, where the pressure coming from the sellers at the currency market exceeds the pressure coming from the buyers and because of that the price could not rise, i.e. a level of resistance is created in height of the prices. Exactly these low points on the drawing are the level where the pressure of the sellers surrenders to the pressure of the buyers and the price can not drop, i.e. a level of support of the price is created. The longer the price drawing stays in the limits of the trade canal, the more promising these lines are. The trade volume also plays an important role, especially when talking about events happening closely to the line of resistance and support. If the price jumps from these lines, the reliability of the trend grows. The truth of the break is checked bearing in mind the principles for price alteration after the break with 3% of the previous closing price.
The importance of the lines of resistance and support comes out of the limits if their initial functions. When there is a significant break, their roles changes. The previous line of support at break of the background with the presence of big volume, most probably turns into the previous line of resistance. And vice versa, the previous line of when being broken, turns into the previous line of support.