Trader Resources : Reading Bar Charts
Support, Resistance, and Trends

Often, a chart will show a decline in prices, followed by a rally back to normal prices. This is called Support. Support occurs when the pressure to buy a futures contract halts the decline in price for the contract. The opposite of support is called Resistance. Resistance occurs when the rallying of a price is stopped by the pressure to sell the contract, and the price falls back to the previous area.

After a few months of trading a contract, the trading price tends to be established between a support and resistance area. When the price leaves this area, it can be a key indicator to buy or sell the contract.

The picture below shows a good example of market support and resistance.


Example of support and resistance

Trends show a movement tendency in prices. Uptrends show a sequence of higher prices (typically higher highs and higher lows), while Downtrends show a sequence of lower prices (lower highs and lower lows). These trends can often be associated with trend lines. It is important to note that a break in the pattern of higher highs or lower lows should not be viewed as a definite indicator of trend reversal, but instead should be seen as a clue that a trend may change in the near future. The picture below shows an example of two trends.


Trend Examples

Often, a Channel can be seen in a graph. A channel refers to a series of highs and lows that run almost parallel to a trend line. Prices that deviate from the channel can be seen as an indicator that a trend is going to change in the near future. The picture below shows an example of a channel.


Channel Example

<< Previous | Next >> | Resources Menu