Basic Technical Analysis From The Butcher, page-2

Lets have a deeper look at trend lines and support and resistance.

So support and resistance are flat lines and trend lines move on an angle, that's about the only difference between them. The price action can run along them, on top of them, underneath then and right through them. But what they represent are lines where the crowd are keeping in the back of their collective subconcious.

Heinekin makes a crap beer but they do make a good example.

So, in this example blue lines are trend lines, and the orange lines are support/resistance (lets use the acronym S/R). The circles are times that these lines were relevant. There are many more lines or S/R and trendlines but if I were to draw them all on we wouldnt have anything to look at. Now how you draw your lines is up to you. Some people like to keep them tight to price peaks, some people use only the Open and Closing prices, some people use the very peaks and are very strict about how they're drawn. Personally, I'm lazy with my lines. I cross right through the action some times because I find that these lines can stretch on for years and levels that don't seem relevant actually have been set so long in the past its amazing.

Now it is significant when the action crosses these lines. In the case of a trend line you could say the majority of people are pushing the price in a particular direction and the others don't agree, but they end up getting screwed in the process. Much like my wife and I whenever we decide to leave the house.

S/R work similarly but they can act as decision points sometimes where the price bunches up and then fires off in either direction. Like my son and I when we leave the house. I say don't go near the road, and he darts off across it anyway. Sometimes these are good places to collect your wins and wait for another move. If it darts up, buy more quick smart. If it falls down, at least you didn't go off the cliff with them. Remember the golden rule: its better to have made a profit than to have made a perfect trade (There are many golden rules).

So go back to the chart. Look at November 2016. You can see that it was in a trading channel formed by two trend lines and then suddenly it just falls off a cliff. You could say that this is how long it took one half of the punters to convince the others that Heinekin is crap, but they kept drinking it anyway until they woke up with a screaming hangover and swore off of the stuff for what looks like 2 months until the price begins to curve up again. In that example, the lower trend line has acted like a line of S/R as well as a trend line, this happens fairly often.

Now have a look at September 2017. Watch how the price tears away from the line of S/R only to return to it. That line stayed relevant for 5 months and people even to this day are convinced that Heinekin is worth that much. Idiots. That level obviously represents a significant level so it is wise to keep in mind that a deviation from it is important. Whether it means the price will return or not is another question.

So to sum up. S/R and trend lines are pretty much the same things. The act the same way as one another but what they represent is where the market believes that the price should be at and they can stay relevant for longer than Heinekin can, so even if you think its not worth it, the crowd does, and that is all that matters.

Again, if you want to know more about this topic, I can highly recommend you go have a look at www.thepatternsite.com and www.stockcharts.com/school/.

And again, if it wasn't clear to you, this isn't financial advice, go speak to a financial advisor, this is for educational purposes only, and Heinekin is not a good beer.