|How those steps are formed|
I drew the lines as soon as they seemed to act as support and resistance. Their numerical value is a arbitrary but is based on where the market seems to be turning round. (Think of them as bands around a number rather than the number itself.) I link these areas to price points which seemed to be important in the past: the end of a dramatic move; or a point where argument has caused a trend to pause.
The value of these support and resistance areas is that they mark the price point where I must pay special attention to what the market will do next. A bounce off support is a sign that buying shares should be profitable. A turn after hitting resistance is a sign that a short position should pay a dividend. Breaking through resistance can be even more profitable for buying shares. But it means that I must look for new potential resistance lines above the break out and should now see the previous area of resistance as a new area of support. Breaking of support is equally dangerous.
False breakouts can also represent a key moment. They can, on occasion, signal that the market is ready to break out of the opposite side of the channel.
|The FTSE struggles to choose direction|