By now you probably have a pretty good idea of how support and resistance lines are used to help in technical analysis of the charts. There are trend lines that need to be taken into consideration as to where to place your trades also. So it’s important to discuss them a little bit.
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You also need to be familiar with price corridors. These help to identify possible asset price swings in either trending direction. These help to determine the current market sympathy and using it to project price movement. They are drawn by plotting two parallel lines that the space in between becomes the price corridor.
Here is an example of how they work:
If a chart shows a descending price trend it is showing that market sentiment is favoring the selling of an asset and the trend is continuing. In such a scenario you could somewhat safely assume that placing a put option here to take advantage of the continuing trend would be wise.
Upper trend lines, which indicate resistance, are displayed by identifying and marking the peak price values over a set period of time. Make sure your line only connects these peak values.
Just the opposite is true for your lower trend line, which is used to show the lowest price values for an asset over a set period of time. Once again, when connecting the low points to form the trend line, make sure that only the lowest points are use when drawing the line.
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