Usually, people who are new to technical analysis can easily confuse the trend line and the channel line, which causes many problems in their analysis and trading. If you are still not quite sure what a channel line is and what the differences are with trend lines and support and resistance lines, stay tuned for the rest of this article.

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Channel line or so-called return line is another useful mode of trend line technique. Sometimes the price trend is formed between two parallel lines (main trend line and channel line). Always when such a channel is created and the analyst is aware of its existence, he can achieve other useful results from this article.

How to draw a channel line in a chart

Drawing a channel line is relatively simple. In an uptrend, first draw the main trend line along the bottom of the trend. Then draw a dotted line from the top first point on the trend path, parallel to the trend line. These two lines form a channel in their ascending motion to the right. If the next uptrend reaches the channel line and returns, it means that the channel is more likely to exist.

The same is true of the downtrend, albeit in the opposite direction. The value of such situations is obvious at first glance. The main trend line can be used to enter the market and buy and the channel line can be considered as a sales area. High-risk traders also use the channel line as the time to enter the market in the opposite direction of the trend, but trading in the opposite direction of the trend can be very dangerous and troublesome.

Check the validity of the channel line

As for the main trends, the longer the channel is maintained, and the more times the price hits both sides of the channel and returns, the more important and credible it certainly becomes.

Breaking the main trend line indicates a significant change in the trend, but breaking the uptrend channel line means exactly the opposite and indicates more acceleration in the current trend. Some traders buy more instead of making sure of the top line in the uptrend.

Another use for trend channels is that failure to form channels by points is a warning that the trend is weak. The price’s inability to reach the upper channel line is an early warning about the reversal of the trend and increases the likelihood of breaking the other line, the main trend line. As a general rule, the inability of price movement (in a strong channel) to reach any of the channel lines usually indicates that the trend is changing and increases the likelihood of breaking the other channel line.

If the price significantly exceeds the channel line, we can see that we are facing a strong trend. Some technical analysts at this time draw a trend line with a steeper slope from the last previous downward wave (wave) parallel to the new channel line.

Often the new steeper support line works better than the previous low slope trend line. Similarly, in an uptrend, if the price cannot reach the top line of the channel, it means that we have to draw a new support line from the bottom of the descending hole and parallel to the high resistance line that passes over the previous two waves.

Channel lines are measuring tools. When the price crosses the channel lines, it usually moves to the width of the channel. Therefore, by analyzing the channel width, the analyst can easily obtain the target prices if both lines are broken.

Last point

As a final point in using channel lines, it should always be remembered that the main trend is much more important and reliable than the channel line. Channel line is a secondary application of trend line technique, but trend line has always been used enough to justify its existence in technical analysis tools.

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