If we take the trend line theory one step further and draw a parallel line with the same ascending or descending trend angle, a channel will be created.
No, we do not mean the sports channel and the National Geographic channel or the provincial channel.
These channels are not TV channels , they are trend channels , sometimes referred to as price channels .
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You will see the use of channels in the analysis of many professional analysts. Channels can be as interesting and exciting as watching the national team game or Liverpool and Barça!
Trend channels are another tool in technical analysis that can be used to determine good places to buy or sell.
The high trend line shows resistance and the low trend line shows support. Therefore, both the roof and the floor of the canals show potential support or resistance areas.
Trend channels with a negative (decreasing) slope are considered as trending channels and trend channels with a positive (increasing) slope are considered ascending.
Trend channels and how to draw them correctly
How to draw trend channels
To create an ascending (incremental) channel, simply draw a parallel line with the same angle as the ascending trend line, and then move that line to a position that reaches the last peak formed. This should be done at the same time as drawing the trend line.
To create a descending channel, simply draw a parallel line with the same angle as the descending trend line, and then move that line to a position that touches the last valley formed. This should be done at the same time as drawing the trend line.
When prices reach the bottom of the trend line, it can be used as a shopping area .
When prices reach a high trend line, it can be used as a sales area .
Note that this only indicates a potential for buying and selling. You need to get the final signal from your trading strategy.
Types of trend channels
There are three types of channels:
- Ascending channel (higher ceiling and higher floor)
- Descending channel (lower ceiling and lower floor)
- Horizontal channel (suffering)
Some traders prefer to use the terms “upward channel” instead of an uptrend channel and “downward channel” instead of a downward channel. They are probably in the 21st century.
Remember the following important points about drawing trend channels:
When drawing a trend channel, both trend lines must be parallel to each other.
In general, the channel floor is considered a “buying area” trend and the channel channel ceiling is considered a “selling area”.
Like drawing trend lines, never feed the price into the channels you draw!
If two channel lines are at an angle, this is not an ideal channel and can lead to bad trades.
When this happens, this chart pattern is no longer a trend channel but a triangle (which we will teach later).
However, trend channels do not have to be completely parallel. As 100% price movements should not be inside the channel.
A common mistake that many traders make is that they are just looking for price patterns that are exactly the same as the book definitions!
They lose important information about price movements and turn a blind eye to other important signs.
Note the drawing of channels in the image below:
Trend channels and how to draw them correctly
Do they look perfect?
Waiting for accurate examples to be found in textbooks does not work in the real world, as it will be very rare to find price movements that fit exactly within two perfectly parallel trend lines.
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