Channels

Channels

If we take a support line and draw a parallel line at the same angle of the up or down trend line, then we will have a channel.

To create a bullish or upward channel, we simply draw a parallel line at the same angle as the rising trend line and then move that line to a position where it can touch the most recent peak. This should be done at the same time as the trendline is created.

To create a bearish or descending channel, a parallel line is drawn at the same angle as the low trend line and then moves that line to a position where it touches the most recent valley. This should also be done at the same time as the trendline is created.

When prices reach the lowest part of the trend line can be used as a buying area. When prices reach the top of the trend line, it can be used as a selling area.

[caption id="attachment_542" align="aligncenter" width="500"] Channels[/caption]

 

As you can see there can also be times when the market oscillates without going up or down in a clear way producing a sideways channel (Sideways Chanel).

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.