Technical Analysis: Trends, Support-Resistance Points

Technical Analysis: Trends, Support-Resistance Points…

Technical Analysis: Trends, Support-Resistance Points

♦ Charles Dow:

• Uptrend (Bull Market)
• Downtrend (Bear Market)
• Horizontal Movement (Fish Market)

♦ Trends consist of three main parts:

• Main Trend
• Intermediate Trend
• Short Term Trend

♦ In an uptrend, the bottom should be tested at least twice. The trend line must cross through these two points. Any subsequent lows should not be below this line.

♦ In a downtrend, at least two peaks must be connected with a line.

♦ When drawing trends, the graph must show a visible increase or decrease.

♦ While the slope of the short-term trend line is high, the slope of the long-term trend is low.

♦ The line that prices are trying to break downwards is the horizontal support line. On the contrary, the line it is trying to break upwards is the horizontal resistance line.

♦ When the horizontal channel consisting of support and resistance lines is broken, we expect a price movement in the broken direction equal to the width of the channel.

♦ In order for a support or resistance to be broken, at least two or three candles must move in that direction.

♦ In order to draw channels, a trend must first be drawn and a parallel line must be crossed through the highest or lowest price levels.

♦ In descending and ascending channels, just like in the horizontal channel, when it breaks, we expect a price movement equal to the width of the channel in the direction it broke.

♦ Increasing trends then form a support line, while each decreasing trend forms a resistance line.

♦ It is accepted that when prices hit the support or resistance line, they will turn back and enter the channel. If the prices do not turn back and enter the channel, if the prices break the support or resistance line, the support line becomes resistance and the resistance line becomes support.

Interpretation

• The more times a trend line crosses bottoms or peaks, the stronger it is.
• The longer the duration of a trend line, the more robust it is.
• If the slope of a trend line is horizontal, it can be said that prices will fall more if they break this trend, and if the trend line is steeper, prices will not fall much after the breaks. Therefore, a steeper trend line is a safer haven.

Rules of Trend Break

1. In order for the trend to be broken definitively, the price must change by 3% to 5% or more from the moment it breaks the trend line.
2. If prices move in the direction of breakage for 3 consecutive candlesticks duration after breaking the trend line, the trend line can be considered broken.
3. If we think that we have exceeded our trend line and the transaction volume increases in this time period, we can say that the trend has been broken. If there is no visible increase in transaction volume, the possibility of a trend break is lower and this may be a trap.

Bull and Bear Traps

♦ Even though the trend seems to be broken in some cases, the price may enter the channel again after a certain period of time. In other words, while prices are in an increasing trend, the trend may break and a decline may begin. But it may rise again in a short time and enter an increasing trend. This situation is called “Bear Trap”.

♦ Prices may break upward while in a decreasing trend. But after a while, it may decrease again and return to the decreasing trend. This situation is called the “Bull Trap”.

♦ The most important thing to distinguish these traps is “Increase in Transaction Volume”.

♦ For downward breaks, it is sufficient that the transaction volume has increased compared to a few days ago, whereas for upward trend breaks, the transaction volume must be at least 1.5-2 times higher than the average transaction volume of the week before the point where the trend broke upwards.

♦ Support and resistance are not unbreakable. The main thing is to carefully monitor whether it will break or not.

♦ The point called support is not a buying point. It is the point that needs to be followed carefully whether it will break downward or not.

♦ Even if resistance levels are used for short-term sales, they are points that need to be carefully monitored whether they will be broken upwards or not.

♦ At points where trends are broken, we need to pay attention to the trend breaking rules (3 rules of which we listed above). The trend can be broken even if only one trend breaking rule is met, while sometimes all three conditions are met but the trend still does not break. In these cases, we must evaluate whether there is actually a trend break by using our other information (Indicators, Formations, Candlestick Charts) in a complicated way.

NOTE: Half-hourly or hourly charts can be used for short-term transactions, 4-hour charts for medium-term tradings, and daily charts for long-term tradings. However, it would be useful to look at the long-term course of the investment instrument even in short-term transactions.

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