Support/Resistance

Although in many ways the graph may appear to wander aimlessly, human nature forbids this. It becomes clear that although it fluctuates, yet there become maximum and minimum figures that people are willing to pay in any given unit of time. This creates what is called lines of resistance and support:

A line of resistance is a line created and the traders are unwilling to trade so as to increase its price.

A line of support is a line created and the traders are unwilling to trade so as to decrease its price.

There seem to be two stages in the production of a line; first, there is the suggestion of a line. This takes place when there are two peaks/troughs in a strategically important position. Then there is the confirmation of the line, when a third peak/trough validates the support/resistance. Below is a graph of cable (GBPUSD) on 30 mins:

Lines of Resistance and Support 

When a graph fluctuates between two lines like this, it is said to be channelling. If the the lines of support and resistance become ignored and the graph goes in a different direction, there is said to be a breakout.

There are actually other lines, intralines, in the graph that exist outside of this paradigm. In the real world traders have different perspectives and expectations and these are written in the graph in a complicated web. Below is a graph of GBPJPY, 15th Feb, 2008:

 Complications of Intralines

Obviously, deciphering what such information is communicating can be a bit of a challenge!