Trading Ranges, Channels, Breakouts,

Support and Resistance Lines

 

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Prices can only move one of three ways.  Up, Down and Sideways.   When the price reaches a level at which no more traders are willing to pay a higher price, it will then trade either sideways or lower.  If there are still buyers at the present price, it will trade sideways.  If the sellers must lower their asking price to find a buyer, then the prices will move ever lower.
The level at which no one is willing to pay a higher price, is where a level of Resistance will form.
In contrast, the level at which the buying begins again, after falling from a resistance level, will become a Support level.
These levels will be test several times until they are finally broken through.  The point at which they pass through the Support or Resistance level is known as the Breakout.  In general, the price will then continue in the same direction until again the buyers or sellers can no longer be enticed.
The price values during the trading between the two Support and Resistance levels is known as the Trading Range.  The overall time period in which this trading range occurs is called a Channel.
These Support and Resistance lines are VERY easy to recognize and a lot of attention it paid to them.  Remembering that prices only move up or down is when there is a decided move toward buying or selling, it is very desirable to be long or short on the correct side of the breakout as defined by these levels.
The longer the length of the channel, the longer the direction of the price will generally run.  This is due to the fact that there has been a longer time in which more traders will begin to recognize the support and resistance lines and their desire to buy or sell will be in check until the breakout occurs.
At that point, the price will then feed on itself as more and more orders are given to either buy or sell, forcing the prices further and further along their direction until the thirst is satisfied.
Once the prices begin to reverse, the support and resistance levels will now sever the opposite effect wherein a resistance level will become the support level as the prices fall, and the support level will become the resistance level as the prices rise.
 
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