Trending Market A trending market is one that generally moves in one direction for a prolonged amount of time. The movement (filtering out spikes either way) is consistent and it’s characterized by a distinct pattern in highs & lows. In an upward trending market, we tend to see higher highs and higher lows; conversely in a downward trending market it’s lower highs and lower lows.
Uptrend and Downtrend
An instrument is said to be in an uptrend simply if its overall direction is upward. This is visually demonstrated in a chart by a succession of higher peaks and troughs. An instrument is said to be in a downtrend if its overall direction is downward. This is visually demonstrated in a chart by a succession of lower peaks and troughs.
In contrast to a trending market, a ranging market is described by broadly sideways action. Such markets usually make the same highs and lows several times. In a ranging market support and resistance levels tend to have a high probability of holding, and traders often try to take advantage of this.
Market support is an area where you expect an instrument to find increased difficulty to penetrate through (essentially where you expect selling interest to emerge). That can be a T/L (trend line), a Fibonacci retracement or a horizontal zone. If volume increases, then the chances of successful support also increase and hence the instrument will find support higher within the zone.
Market resistance is an area where you expect an instrument to find increased difficulty to penetrate through (essentially where you expect selling interest to emerge). That can be a T/L (trend line), a Fibonacci retracement or a horizontal zone. If volume increases, then the chances of successful resistance also increase and hence the instrument will find resistance higher within the zone.
Confluence is when several key levels (resistance, support, fibonacci retracement etc) are in close vicinity. This makes the probability of resistance or support much greater than normal. Traders usually look for areas of confluence where price action usually becomes more predictable.
A channel is a chart structure that is bound by two parallel trend lines (the lower trend line and the upper trend line). A channel is defined by at least 4 points of contact (support and resistance). Channels can be rising, falling or horizontal. Occasionally channels evolve over time to triangles as traders attempt to undercut each other within the channel range.
A gap is a part of the chart where there are no trades at all. This usually occurs when new market-moving information becomes available when a market is closed; the price gaps up or down when the market subsequently reopens. Another cause of gaps is when some major news/data/event comes out and causes a violent repricing of an instrument (e.g. 9-11, the removal of the EURCHF SNB floor etc). Price action often returns to revisit the initial point of the gap break (called “fill the gap”) and for this reason gaps are usually used as reference points or targets by traders.