Constructing a funnel from converging support and resistance

Draft the geometry first

A funnel formation is a chart structure built by extending a rising support line and a falling resistance line until they meet at a forward apex. Construction starts by connecting successive rising support reversals into one line and successive falling resistance reversals into another, then extending both lines until they meet.

A support line is a boundary drawn through successive reversals where a decline was held and price turned higher. A resistance line is a boundary drawn through successive reversals where an advance failed and price turned lower. Support is a location where price is held and then reverses. Resistance is a location where price cannot advance and then reverses.

The same funnel geometry can appear on intraday, weekly, monthly, and multi-year charts.

Editorial note: treat the funnel as a drafting exercise first and a trade idea second. Lock the two lines before asking what a later break might mean.

Check the break before the apex

The apex is the projected meeting point of the funnel boundaries. The closer daily trading moves toward that point, the sooner a breakout is expected.

An early downside penetration of the support line that finishes near the session low can be treated as a preparatory alert that a larger move may follow. Breakout confirmation is a later penetration of a funnel boundary judged by how the session opened and closed, not by the first breach alone. A later session that opens through the support line but does not close on its low can be used as a first check on whether the downside breakout is genuine.

A session that trades lower into the support area and then closes substantially higher can be read as a bounce that challenges the bearish reading of the prior support break.

Read volume at the boundary

When price approaches a funnel support line on declining volume, the condition may be read as accumulation consistent with an intended upside resolution. Accumulation is a dull, slow stretch near support, often with fading volume, read as buying that may precede an upside resolution.

When price approaches a funnel resistance line on declining volume, the condition may be read as distribution consistent with an intended downside resolution. Distribution is a volatile stretch near resistance, often with fading volume at the cap, read as selling that may precede a downside resolution.