Take a trendline, add a parallel line on the other side of price, and you've got a channel.
Types
- Ascending channel: higher highs and higher lows. Buy near the bottom line.
- Descending channel: lower highs and lower lows. Sell near the top line.
- Horizontal channel: a range. Buy support, sell resistance.
Trading a channel
Trade with the channel direction. In an ascending channel, buy near the lower line and take profit near the upper line. Counter-trend trades off the top are lower quality.
Wick says
Price in a channel is like a car on a motorway. It drifts between lanes but keeps heading the same way, until it takes an exit.
Key takeaways
- A channel is a trendline plus a parallel line.
- Trade in the direction of the channel.
- A close outside the channel signals the trend may be changing.