Education & Information
Trendlines
Bearish Resistance Line
The bearish resistance line is the main trend line while the major trend of a stock is lower with supply in control of trading. Consider it the exact opposite of the bullish support line. To record the bearish resistance line, simply look for the highest column of Xs on the chart. In the price level immediately above the highest X in that column is where the bearish resistance line begins. Every time the chart changes columns from Xs to Os or Os to Xs the bearish resistance line would move down one price level and over one column to the right. In the chart below, the highest column of Xs on the chart is at $23. The bearish resistance line would begin at the price level directly above that column or at $24. As the chart reverses from Os to Xs, we simply bring the bearish resistance line down one price level and over one column to the right or at $23 in this case. As the chart reverses into the next column of Xs, the bearish resistance line would come down another price level and over on column to the right and so on.
As long as the chart stays below the bearish resistance line, the major trend of the stock is considered to be down as supply is in control. When the trend of supply in control is very strong, the shares will fall to price levels considerably below the level where the bearish resistance line is at. In the chart below we can see at one point the chart is in a column of Os at $8 while the bearish resistance line is considerably higher at $17. Eventually, even stocks with a strong pattern of supply being in control, will see demand lift the shares on a short-term basis. During these times, the stock tends to advance up to the bearish resistance line. You can see this happening on two different occasions on the chart below. After dropping initially to $14, the stock shows a weak buy signal and advances up to $18. This is the same level as the bearish resistance line, which prevents the stock from advancing further. When a stock in a strong decline rises to the resistance line, often times it acts like a brick wall and the stock cannot penetrate the line. In order for the bearish resistance line to be broken, the column of Xs must rise above the line by at least one full price level. Merely reaching the same level is not considered penetration of resistance. In this case, simply move one column to the right to continue recording the bearish resistance line.
In the chart below, you can see that when the stock once again begins declining after hitting the resistance line, it falls down to new lows. Similar action occurs later in the chart at the $14 level before beginning a strong decline yet again. Eventually, demand will overtake control and a column of Xs will be strong enough to penetrate the bearish resistance line. At that time, the main trend changes from supply to demand being in control. Once the bearish resistance line is broken, a bullish support line is begun.
