Trendline, Support and Resistance Levels


This is the most basic concept in technical analysis. A trend can be an uptrend or a downtrend. An uptrend indicates that the prices are continuously increasing reaching higher highs and higher lows. This indicates a higher demand relative to the supply. A downtrend indicates that the prices are continuously decreasing reaching lower highs and lower lows. This indicates a higher supply relative to the demand. A trading range is the range within which the price fluctuates.

Persistence of trends

  • Stock prices move in fairly persistent trends
  • Price behaviour is characterised by inertia
  • Price movement continues in the same path until met by opposing force.

Relationship between volume and trends

  • Volume and trend go hand in hand
  • When major uptrend begins, trading volume increases as the price advance and decreases as the price declines
  • When a major downtrend begins, trading volume increases when price declines, and decreases when price rallies

Support and Resistance

A trend line is bound by a level of support and resistance.

  • Resistance level: It’s difficult for prices to rise above this level.
  • Support level: It’s difficult for prices to fall below this level. Think of it as the level at which a lot of buyers tend to enter the stock.

Change in Polarity

Change of polarity refers to the psychology that when a resistance level or support level is breached, they reverse their role. For example, when a resistance level is breached, it becomes the new support level, that is, now the prices will not easily fall below this level. Similarly, when a support level is breached and the price falls below it, the support level becomes the new resistance level, that is, the prices will not rise above this level.

Learn the skills required to excel in data science and data analytics covering R, Python, machine learning, and AI.

Free Guides - Getting Started with R and Python

Enter your name and email address below and we will email you the guides for R programming and Python.

Saylient AI Logo

Take the Next Step in Your Data Career

Join our membership for lifetime unlimited access to all our data analytics and data science learning content and resources.