As well as showing the direction and strength of the current price movement (or trend), trend lines also show the potential support and resistance for the trend. The future support and resistance of the current price movement are very valuable pieces of information, and there are several trend line trading systems that are based upon this support and resistance.
Support
Support is defined as a price that the market has difficulty trading below, and is so named because it supports or holds up the price. Trend lines show potential support by the extension of the trend line into the future. Support is most often shown by upward trend lines, but can also be shown by sideways trend lines. A strong trend line will keep the price above the trend line and its associated support, until the support weakens, at which time the price will break through the trend line, and trade below the trend line and its associated support. An upward trend line is shown in yellow in the example chart, and the potential support is shown by the highlighted area (view the chart in full size).
Resistance
Resistance is defined as a price that the market has difficulty trading above, and is so named because it resists or holds down the price. Trend lines show potential resistance by the extension of the trend line into the future. Resistance is most often shown by downward trend lines, but can also be shown by sideways trend lines. A strong trend line will keep the price below the trend line and its associated resistance, until the resistance weakens, at which time the price will break through the trend line, and trade above the trend line and its associated resistance. An downward trend line is shown in yellow in the example chart, and the potential resistance is shown by the highlighted area (view the chart in full size).
