Written by Robert McKinley

Review of Support and Resistance

The Resistance level or area is the highest point a currency price reaches in an “up cycle” before it reverses and begins to decline (move down).

The Support level or area is the lowest point a currency price reaches in a “down cycle” before it reverses and begins to advance (move up).

Trend Lines

• In an uptrend, the trend line is drawn along the bottom of the lowest price points (the bottom of the valleys), which are also areas of support.
• In a downtrend, the trend line is drawn along the top of the highest price points (the top of the peaks), which are also areas of resistance.

Channels

• An uptrend channel is created by drawing a line that is at the same degree and parallel to an uptrend line and which touches the most recent peak (as opposed to the existing uptrend line, which touches the lowest price point).
• A downtrend channel is created by drawing a line that is at the same degree and parallel to a downtrend line and which touches the most recent lowest price point or valley (as opposed to the existing downtrend line, which touches the highest price point).

You can review the two charts below to be certain of exactly how this is done. The first chart shows just trend lines. The second chart is the same chart but with the channels drawn.

Chart with trend lines.

Chart with channels.

The next set of lessons will be about Fibonacci Ratios and how they are used in Forex trading.