Whether there is actually a trend within a market will depend upon a series of highs and lows that are relative to one another. For example, if you notice there are two back to back highs, each of which is higher than the previous high and there are also two lows that are higher than the prior low this would indicate what would be known as a tentative upward trend. If there is then a third high this would serve to confirm the existence of a trend. Whether or not the trend continues will depend on whether successive rallies are able to reach a price that is greater than prior prices.

It is important to keep in mind that markets do not always necessarily move in terms of trends. Markets actually spend quite a bit of time in what are known as ranges, which means that they fluctuate between highs and lows that have been previously established. In many cases a market that is range bound might have what is known as a sideways trend, which means that it is not moving upward or downward.

Trend lines tend to be drawn based on price levels over a historical period. This demonstrates the general direction in which the market is moving. In an upward trend you should usually see that the trend line connects the low points represented on the chart. In a downward trend, the relative high points on the charts should be connected. Tentative trade lines consist of two relative lows or highs represented on the same line.

When you are trading the support and resistance levels, there are two things you need to keep an eye out for. First, you need to be on the lookout for what is sometimes known as the bounce. Some traders make the mistake of basing their orders right on support and resistance lines. They then sit back and simply wait for their trade to appear. While this type of method might work some of the time, it won’t work all of the time. The best method is to make sure that you identify confirmation that the resistance or support is actually going to hold. The way to do this is by waiting for the support or resistance to bounce before you enter the market. This can help you to avoid rapid price movements.

You also need to be on the lookout for what is known as the break in the market. It would be nice if a support or resistance level would simply last forever, but that just doesn’t happen. You need to always keep in mind that levels will break and they will do so often. As a result, you have to be on the lookout not just for the bounces but you also need to know what to do when you see resistance or support levels break. There are two ways in which you can respond. You can be aggressive or conservative.

In the aggressive approach, you would either buy or sell whenever you see that a price has passed through a resistance or support zone. Now, the key to succeeding with this approach is that you must make sure that the price has passed through a support or resistance zone with relative ease. It needs to be something that can definitely be seen. Not just something you suspect.

In the conservative approach, you would need to be patient and wait until you see the price establish a pullback to a broken resistance or support level before you enter after the price has then bounced. Of course, if you are the impatient type, it can be hard to exercise this type of patience and wait, but if you’re looking for the approach with the least amount of risk, this would be it.

The final word, chapter 10 – click here.