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Concept of "trend" and its varieties and identification methods. Support and resistance levels

Trend is your friend. This is one of general rules of the technical analysis. Usually the meaning of this phrase is interpreted this way: once began, trend is aimed to develop in given direction and develops until the opposite trend starts. We talked about price movement earlier. However not every price movement is a trend. Ascendant trend is that complex of price movement in which each next maximum is higher than previous one, or each next minimum is higher than previous too. Descendant trend is such a complex of movement in which each new minimum is lower than previous minimum, and each new maximum is lower than previous maximum.

Picture 5. Trends

From the notion we may come to the conclusion that to identify trend we will need no less than three points (for example, two minimums and one maximum). This identification in general case should be regarded as preliminary one: until the forth point (another minimum - for our example) will not prove or contradict forward assumption.

The opposite trend or flat (see below) starts, as a rule, when disruption of significant part of extremum takes place. For example, if at the moment ascendant trend takes place, the disruption of another significant minimum will lead to the beginning of descendant trend. On the contrary, at the moment of descendant trend the disruption of another maximum might mean the start for ascendant trend.

Picture 6. Change in trend after breaking of level of support or resistance

No matter what trend it is (ascendant or descendant or "side" trend (see below)), a line that crosses consecutive minimums is called the line of support, and a line that crosses consecutive maximums is called the line of resistance.