- The number of times that level has been tested.
- The amount of volume that has been traded near the level.
- Whether the level is old or new.. recent level has greater importance.
- Whether the level is new high or new low- more extreme levels has greater impact.
- When price fluctuate within the support & resistance band and there is no clear indication ie sideways market. Avoid trading in such market.
- Trading ranges may signal distribution when they occur in an uptrend and accumulation in a down trend. Breakouts from a range can occur in either direction.
- A target for the breakout move can be calculated by, measuring the height of the trading range& projecting this upwards from the point of breakout ( or downwards if there is a downside breakout).
- Volume should be average during the formation of trading range & huge on the breakout above or below the range.
Trend line: A line that is drawn over pivot highs or under pivot lows to show the prevailing direction of the price. Trend lines are visual representation of support and resistance in any time frame. It is used to show direction & speed of price. Following are the points to be noted.
- There should be at least two points to draw the trend line. In upward trend, the second low point should be higher than first low point & vice versa in downtrend.
- Trend line is drawn from left to right.
- Trend line should be drawn at 45 degree (approx), otherwise it may give false indication.
Channel: A price channel is a pair of parallel trend lines that form a chart pattern for a stock. Channels may be horizontal, ascending or descending. When prices hit the bottom trend line, used as buying area & when it hits the upper trend line, used for selling.
In next coming blogs we will see various types of chart patterns.
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