Reading the Chart
Trend, support, resistance
Everyone says "the trend is your friend" and almost nobody can say, out loud and in advance, what would prove the trend is over. Without that second sentence the first one is useless: it lets you call every dip a buying opportunity right up to the moment you have no capital left. A trend is not a feeling about direction. It is a structure with a definition and a specific point at which it is dead.
Charles Dow, writing editorials in the 1890s, gave the definition every technical framework since has borrowed. An UPTREND is a sequence of successively higher peaks and higher troughs. A DOWNTREND is successively lower peaks and lower troughs. Anything else is a range. That is the whole thing, and its power is that it is falsifiable: an uptrend ends not when it feels tired, but the moment price makes a lower low after a lower high. You can mark that level on the chart before it happens, which means you can decide what you will do before you have to feel anything.
- In an uptrend connect the LOWS; in a downtrend connect the HIGHS. You are drawing the line the crowd has been defending, not the one that looks tidiest.
- Two points define a line; the THIRD touch is what makes it evidence. Until price has respected it three times you have a hypothesis, not a level.
- The longer the line has held and the more touches it has, the more it matters — and the more violent the reaction when it finally breaks.
- Draw a parallel of the trendline across the opposite extremes and you have the CHANNEL. Price spends most of a trend inside it; the far rail is where you take profit, not where you enter.
Suppose a stock stalls at 50 four times and finally breaks above it. Three groups now hold a memory of that level. The people who sold at 50 and watched it run wish they had not, and will buy on a return to 50. The people who bought at 50 and suffered while it churned promised themselves they would exit "at break-even" — they already exited, and are no longer sellers there. And the ones who watched the breakout without acting are waiting for exactly this pullback. Every one of those groups is a buyer at 50, which is why the ceiling becomes a floor. Levels persist because memory and regret persist.
Murphy presents Dow Theory in full, including its confirmation rule — a signal in the Industrials had to be confirmed by the Transports, because what is made must also be shipped. In a services and software economy that specific pairing is far weaker than it was in 1900. What survived intact is the structural definition of trend, the three-phase anatomy of a bull market (accumulation by the informed, participation by the trend followers, distribution to the public), and the insistence that volume should expand in the direction of the trend. Take the skeleton; leave the 1900s index pairing to history.
Support at 50 does not mean 50.00. It means a neighbourhood — the cluster of prices where buyers previously showed up — and it is routinely undercut by a few tenths before it holds. Traders who place a stop at 49.99 because "support is 50" are donating money to the people who know that a stop cluster just below an obvious level is the easiest liquidity in the market. Put the level in as a zone, and put your stop where the IDEA is wrong, which is meaningfully below the zone, not one tick under it.
Markets spend a large share of their time going nowhere, and every trend-following technique in this course is a losing proposition during that time. Recognising "this is a range" is therefore not a failure to find a trend — it is a finding, and it changes the toolkit: you fade the edges instead of chasing the breaks, or you stand aside. The single most common way a competent chart reader loses money is applying trend tools to a range because they wanted a trade.
Support and resistance are not properties of a price; they are properties of the people who traded there. That is why they survive being broken (the memory outlives the level), why they flip roles (regret changes sides), and why a level with more history is stronger than a level with a rounder number. You are not reading a chart of an asset. You are reading a map of where decisions were made and regretted.
A market in an uptrend makes a peak at 120, pulls back to 108, rallies to 118, then falls to 105. Is the uptrend still intact, and at what price was the answer decided? (It is over. 118 was a LOWER high, which was a warning, not a verdict; the verdict came at the break of the prior trough at 108 — that is where the sequence became lower high plus lower low. 108 was markable in advance, which is exactly why Dow's definition is worth using.)
An uptrend is higher highs and higher lows; a downtrend is the mirror; everything else is a range, and knowing which one you are in decides which tools are allowed. Trendlines connect lows in an uptrend and highs in a downtrend, and need three touches to count. Support and resistance are zones held together by memory, they swap roles once broken, and they are stronger with age and with touches. Above all: define, before you enter, the price at which your read is wrong.
Take one weekly chart and mark only two things: the last three significant peaks and the last three significant troughs. Write the sequence — higher/lower — beside each. Then write one number at the bottom of the page: the price at which the current sequence breaks. That single number is more actionable than any indicator you could add to the chart, and you now have it before the market does anything.
Reading the Chart