Support, Resistance & Chart Patterns — Trend Lines and Triangles

Overview: Prices the Market Remembers

Markets have price levels people remember. Price stalls and turns there repeatedly. Marking those spots with lines gives you support/resistance, and drawing along the direction of a trend gives you the trend line. The shapes these lines form are chart patterns.

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1. Support and Resistance

Term	Definition	Psychology
Support	A price level where falling halts	”I’ll buy at this price” — waiting buyers
Resistance	A level where rising stalls	”I’ll sell at this price” — waiting sellers

Role Reversal

When resistance is strongly broken, it later turns into support. Conversely, broken support becomes resistance. Price often returns to “retest” a level it has just broken.

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2. Drawing Trend Lines

• Uptrend line: connect the lows (HLs) sloping up → acts as support
• Downtrend line: connect the highs (LHs) sloping down → acts as resistance
• Channel: draw a parallel line to form a price corridor

An ascending channel is the corridor between a trend line drawn through the lows (support) and a parallel line drawn through the highs (resistance), with price moving up and to the right between them.

A break of the trend line (uptrend line breached) is the first warning of a trend reversal.

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3. Reversal Patterns — The Trend Changes

Pattern	Shape	Meaning
Head & shoulders	Left shoulder, head, right shoulder + neckline	Up → down reversal
Inverse H&S	Flipped vertically	Down → up reversal
Double top	M-shape, two highs	Up → down reversal
Double bottom	W-shape, two lows	Down → up reversal

Head & Shoulders Scenario

1. After the head forms, draw the neckline.
2. When the right shoulder breaks the neckline downward → sell signal.
3. Target ≈ project the head-to-neckline height below the neckline.

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4. Continuation Patterns — The Trend Resumes

Pauses within a trend; the breakout usually continues the prior direction.

• Triangle: range narrows to a point → resolves in the breakout direction
  • Ascending (flat resistance + rising support) → usually breaks up
  • Descending (flat support + falling resistance) → usually breaks down
• Flag/pennant: a brief pause after a sharp move → resumes the prior direction
• Rectangle (range): sideways within a band → breakout decides direction

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5. Breakouts and False Breakouts (Whipsaws)

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Key Takeaways

1. Support/resistance are levels the market remembers; once broken, roles reverse.
2. Trend lines connect lows/highs; a break is the first warning of reversal.
3. Head-and-shoulders and double tops/bottoms are reversal patterns; triangles and flags are continuations.
4. A pattern is a hypothesis until completed by a breakout; estimate targets from pattern height.
5. Filter false breakouts (whipsaws) with volume and the closing basis.

Next lesson: We tackle volume head-on — how it confirms the truth of trends and breakouts, all the way to volume profile.