Trends & SupportsChapter 2

Trends, Support and Resistance

Trends, support, and resistance are the most fundamental concepts in technical analysis. A trend defines the dominant direction of price movement, while support and resistance levels identify where buying and selling pressure concentrates.

Last updated: 29 July 2026

Definition

Murphy defines trend in chapter 4 (1999 edition, "The Basic Concepts of Trend") as the general direction in which a market is moving. He identifies three kinds:

Uptrend: a succession of higher highs and higher lows. As long as that structure holds, the trend is intact

Downtrend: a succession of lower highs and lower lows

Range (trendless, sideways): price oscillates between a ceiling and a floor with no clear direction. Murphy reckons markets are only in trend around 30% of the time — they spend most of their life in these directionless phases, and that is his entire argument for turning to oscillators when trend is absent

Support is a price level where buying pressure is strong enough to halt or reverse a decline. Resistance is a level where selling pressure is enough to stop or reverse an advance. In chapter 4 Murphy stresses one fundamental idea: once a support is broken it becomes resistance, and the reverse. This polarity principle is among the most reliable in technical analysis.

Trendlines are straight lines drawn along rising lows (dynamic support in an uptrend) or falling highs (dynamic resistance in a downtrend). Murphy requires a minimum of three points of contact before a trendline counts as valid.

Why it matters

Murphy devotes two full chapters to trends and to support/resistance because they are the bedrock of all technical analysis. Before applying any indicator or oscillator, the analyst has to identify the prevailing trend and the market's key levels. That preliminary step is to a chart what diagnosis is to a physician: before prescribing a treatment (an indicator), you first have to understand the patient's condition (the trend).

Support and resistance rest on crowd psychology. At support, buyers see opportunity and short sellers take profits. At resistance, buyers take profits and sellers judge the price excessive. The more often a level has been tested without breaking, the more orders accumulate around it — and the more significant a break, when it comes, will be.

Key points

A trendline's validity grows with the number of contact points and the length of time it has been respected. A line tested five times over six months carries far more weight than one joining two points over two weeks

The most important support and resistance levels are those matching high traded volume (areas of heavy historical activity), psychological levels (round numbers such as 10,000 or 50,000), or historical price extremes (yearly highs and lows)

Murphy recommends multi-timeframe analysis: identify support and resistance on a higher timeframe (weekly or monthly), then refine the entry on a lower one (daily or four-hour). A level visible across several timeframes carries much more weight

Volume is the final arbiter of a breakout's validity. Murphy asks that an upside break come with volume clearly above average, without fixing a numerical threshold — the often-quoted rule of volume at least 50% above average is a practitioners' convention. A downside break can be valid on lighter volume, gravity helping: markets often fall under their own weight

Concrete example

Examples

The 4,800 area on the S&P 500 illustrates how a major resistance behaves. The all-time high was set in January 2022 (4,818 intraday), and it kept the market at bay for two years: the March 2022 rebound stalled near 4,637, and the index only returned to the zone in late December 2023 (~4,793) — two genuine approaches before the break of January 2024. That breakout came on unremarkable volume: a useful reminder that the volume filter (key point 4) improves the odds without being a necessary condition — not every valid breakout ticks every box. And the textbook pullback never came: the index ran to 5,000 by February, passed 5,250 by late March, and the first real correction (April 2024) stopped near 4,950, still above the broken zone. This is the powerful-breakout case: traders waiting for a return to 4,800 — former resistance turned support, the polarity principle — never got in. Pullbacks often offer the best entry (see the vocabulary), but they are not guaranteed, and their absence is precisely the signature of the strongest breaks. Conversely, the 3,500 support tested in October 2022 (low at 3,491) coincided with the 50% retracement of the entire 2020-2022 advance — a confluence between a round psychological level and a Fibonacci retracement, which explains the violence of the rebound from there.

Ranges deserve the same attention as breakouts. For much of 2023, EUR/USD oscillated between support near 1.05 and resistance near 1.10. Both levels were briefly broken — above 1.10 in July (to about 1.1276), below 1.05 in early October (about 1.0448) — and both breaks snapped back inside the range within weeks: textbook false breakouts, and a reminder that support and resistance zones contain price far more often than they launch new trends.

Common mistakes

Caution

Drawing so many lines and levels that the chart becomes unreadable. Better to keep only the few genuinely significant ones — three to five in practice

Treating a support or resistance as an exact price, accurate to the cent. It is a zone, not a surgical line. A wick overshooting by a few ticks is not a break

Ignoring volume on a breakout: a break on thin volume is often a false signal that traps impatient traders

Trading against the trend by buying support in a downtrend. In a bear market supports usually give way one after another; the trend context outranks any individual level

Practical note

Murphy

Murphy recommends always starting the analysis on the longest timeframe (monthly), then working down through weekly, daily and finally intraday. A support identified on the monthly chart is immeasurably stronger than one visible only on the 15-minute. The image that captures the approach is a progressive zoom on a map — the country first, then the region, the city, and finally the street.

Market impact

Markets

Support and resistance levels concentrate the buy and sell orders of market participants — stop-losses, take-profits, limit orders. Breaking one triggers cascades of automatic orders that amplify the move. High-frequency trading algorithms deliberately target these levels to exploit the concentrated liquidity. The break of a major support or resistance on an index such as the S&P 500 or the FTSE 100 sets off large reallocations by institutional funds. Part of the effect is self-fulfilling: because so many participants watch the same levels, buying and selling concentrate there, which reinforces their significance.

Reference