Basics
Basic Chart Patterns
The two basic elements of technical analysis, and the study of chart patterns in particular, are the concepts of support and resistance and trend lines. The Dow Theory of trends, for example, is based on support and resistance and states that a market is in an uptrend when it makes higher highs and higher lows, and is in a downtrend when it makes lower lows and lower highs.
The highs are formed on the chart at resistance levels, where selling is strong enough to push back and reverse a weaker rally in prices. The lows are formed on the chart at support levels, where buying is strong enough to reverse a decline in prices. Note: Support and resistance lines are often confused with trend lines, however, support and resistance lines are horizontal lines which trend lines are lines that slope in the direction of the trend.