Technical and Fundamental Analysis (Beginner Level)

Support and Resistance

Identifying areas of support and resistance is a key aim of technical analysis. Support and resistance help you to highlight significant trading levels which is vital when deciding where to open a trade, as well as in choosing your stop and “take profit” target.

Support and resistance can often be marked by a pair of horizontal lines. The lower could link up price levels where the market has repeatedly turned higher. The upper line links up price levels where the market has repeatedly turned lower. However, areas of support and resistance aren’t always marked by horizontal lines.

Trending Markets

Areas of support and resistance can also marked by sloping parallel trend lines. In an uptrend the lines will run from the bottom left of the chart towards the upper right.

In a downtrend the lines will run from the upper left of the chart to the bottom right. In this type of market traders look to ride out the trend – buying near support in an uptrend, or selling near resistance in a downtrend.

The trend is your friend – but it’s still vitally important to undertake strict risk management. If the trend breaks down then the reversal can be swift and sharp, so keep a close eye on your stops.

Ranging markets

Markets go up and markets go down. Often prices can remain in a trend for many weeks or months. But sometimes they can become range-bound with no obvious direction.

This suggests indecision on the part of traders as they appear unwilling to drive prices decisively above areas of resistance or support. This is a range-bound market and it can provide plenty of potentially profitable trade set-ups as prices bounce off a line of support and pull back from an area of resistance.

Swing traders are particularly attracted to range bound markets and use a variety of technical indicators to help them identify when markets are oversold and overbought and therefore likely to change direction. Sometimes prices will range between a set of horizontal parallel lines.

However, they can also fluctuate within specific shapes such as triangles, pennants and flags. We show examples of these later in this guide.

Technical and Fundamental Analysis