Fundamental factors are the major drivers of a stock's long-term trend. As companies perform well fundamentally their stock prices typically move higher. As companies perform poorly their stock prices typically move lower. Whilst the fundamental outlook for a company can literally change overnight, the trends established by a company's fundamental outlook tend to last for a while.

Long-term trends, sometimes called major trends, are those trends that have dominated a stock or CFD for the longest period. Looking at this weekly chart of McDonalds (MCD:xnys), you can see that the stock price has been rising in an upward trend from left to right-notice the series of higher highs and higher lows as time progressed (see Figure 4).

When you see a strong upward trend like the one you see on the chart for McDonalds, you know that traders are eager to buy this stock and you should consider doing the same if you want to make money from this price movement. If the trend on the chart for McDonalds had been pointing downward, you would consider selling the stock or CFD to take advantage of the price movement.

Next you need to look at the intermediate trend to see if it is trending in the same direction as the long-term trend.

Intermediate trends, sometimes called minor trends, move more rapidly than long-term trends because they cover a shorter period of time. These trends are also affected by a company's fundamental factors. Looking at this daily chart of McDonalds you can see that the stock price has not moved straight up as it has followed its long-term upward trend. It has had periods when the price has moved sideways. It has also had periods when the price has fallen (see Figure 5).

Notice that, whilst there have been periods when the intermediate trend was moving both sideways and downward, the long-term trend was still moving upward. Trends tend to move in a stepped or zig-zag fashion. Rarely do they move straight up or straight down.

Seeing this price action should confirm your bias toward buying McDonalds. However, it should also tell you that whilst your bias is bullish (you think the stock price is going to move higher) you may want to wait to buy the stock or CFD until you see the intermediate trend move upward and in line with the long-term trend.

Next you need to look at the short-term trend to see if it is trending in the same direction as the long-term trend and the intermediate trend.

Short-term trends, sometimes called micro trends, are more volatile than both long-term trends and intermediate trends because they cover the shortest period of time and they are predominantly affected by the news of the day. It is not uncommon to see these short-term trends change direction extremely rapidly. Looking at this hourly chart of McDonalds you can see that the stock price was in a short-term downward trend at the beginning of the chart. Notice the series of lower highs and lower lows as time progressed (see Figure 6).

Notice too that, whilst the short-term trend was moving downward, the intermediate trend and the long-term trend were still moving upward. It is therefore possible to have different trend time-frames moving in different directions at the same time.

Seeing this downward trend on the hourly chart would probably have deterred you from making a bullish investment in McDonalds at that time, even though the intermediate and long-term trends were bullish. However, since it is the only the short-term trend, you should not abandon your bullish confidence in McDonalds just yet.

In fact if you look at the end of the hourly chart for McDonalds you can see the short-term trend changing direction, which may bring all three trends into alignment.

Your most profitable trading opportunities will come when the long-term, intermediate and short-term trends all line up in the same direction. Just as it is easier to swim downstream instead of upstream against the current, it is easier to trade with a trend than against it. When the long-term, intermediate and short-term trends are all moving higher it is an excellent time to buy a stock or CFD. When the long-term, intermediate and short-term trends are all moving lower it is an excellent time to sell a stock or CFD.

You can see in the chart of McDonalds that the trend for each time-frame has been moving higher for the past few months, and that the price of McDonalds has shot up. Had you purchased this stock or CFD, and then held it throughout this most recent surge, you would have made a large profit (see Figure 7).

Understanding trends is only half of what basic technical analysis is about. To get the full picture you also have to understand the concepts of support and resistance.

Horizontal support and resistance levels form as stock prices rise or fall to the same levels time and time again. You can see these support and resistance levels take shape on charts of the stocks and CFDs you are interested in trading as the stock price moves back and forth.

Looking at the Caterpillar (CAT:xnys) chart, for instance, you can see that certain price levels (indicated by bold black lines) acted as strong levels of support and resistance. From June 2007 to the early part of August 2007 the $77.50 price level served as support for the stock price (see Figure 8). This same price level, once the stock price broke down through it in mid-August, served as resistance for the stock price throughout the rest of August and into September.

Imagine you had bought the stock or CFD for Caterpillar in early September at $72.50 as it was bouncing from support and it was now approaching $82.50. Knowing that this level has been a significant resistance level, you may consider exiting your Caterpillar investment so that you can realize your profits before the stock price turns around and begins moving lower.

Once you feel comfortable identifying horizontal levels of support and resistance, you can move on to diagonal levels of support and resistance.

Diagonal support and resistance levels, you will find, can be a trader's best friend. Whilst these levels can be more difficult to identify when you are just getting started, they are invaluable when you are analyzing a stock or CFD that is on a trend. Remember, you want to identify stock or CFD trends early because it is much easier to make profitable trades when a stock or CFD is on a trend.

As you look at the charts of the stocks and CFDs you are interested in trading, you will begin to notice that they will often form higher highs and higher lows, or lower highs and lower lows, as they increase or decrease in value. The lines that connect these highs and lows are your diagonal support and resistance levels.

Looking at the same Caterpillar (CAT:xnys) chart as we were looking at previously, for instance, you can see that the stock price was creating a series of lower highs and lower lows towards the end of 2007. If you connect all of the highs with a diagonal line and all of the lows with another diagonal line (indicated by bold black lines) you will be able to see the diagonal levels of support and resistance that were affecting the price of Caterpillar (see Figure 9). You can also see that the downward trending level running between the support and resistance levels served as both support and resistance during that same period of time.

If you were watching Caterpillar you would wait until you saw the stock price rise up to the downward-trending resistance level before you sold the stock or CFD. Once you had invested you could then watch for Caterpillar to fall down to the down-trending support level before you exited the investment and took your profits.

The real trick in effectively investing using support and resistance levels is to combine both horizontal and diagonal levels in your analysis. Just as you've seen in these illustrations of Caterpillar's price chart, horizontal and diagonal support and resistance levels co-exist. Your stock and CFD charts have a wealth of information locked within them, and they are waiting for you to unlock that information with simple-but-effective technical analysis techniques.