For trading reasons, trending and pullback waves (also known as impulse and corrective waves) are studied. A trend might move faster if the trending waves outweigh the corrective waves in size. The duration of trending and reversal waves, or "swing highs" and "swing lows," is used to identify markets. An uptrend is governed by two rules: price must make higher swing highs and lower swing lows. Downtrends, on the other hand, have the opposite impact. Troughs and peaks of trendlines hover between lines of support and resistance on a price chart.
The major waves up and down, as well as the downtrend reversal, are depicted by overlaid lines on this Amazon (AMZN) candlestick chart. Prices may also create patterns such as ranges (equal-sized waves rising and falling), triangles (shrinking and expanding price waves), and growing ranges (shrinking and increasing price waves) (higher swing highs and lower swing lows). Price action trading is highly based on trends and patterns as the foundation of its method. Traders also use candlestick charts to monitor supply and demand levels and trends. The foundations of price action trading are trends and patterns. Traders also use candlestick charts to monitor supply and demand levels and trends.