Trend channels are just another technique in technical analysis that may be used to discover suitable buy and sell points.
The top trend line represents resistance, while the lower trend line represents support. As a result, the tops and bottoms of channels might both indicate possible places of support or resistance.
Trend channels with a negative slope (down) are bearish, while those with a positive slope (up) are bullish.
Simply draw a parallel line at the same angle as an uptrend line and move it to a location where it contacts the most recent peak to establish an up (ascending) channel. This should be done concurrently with the trend line.
Simply draw a parallel line at the same angle as the downtrend line and move it to a location where it touches the most recent valley to establish a down (descending) channel. This should be done concurrently with the trend line.
When prices reach the LOWER trend line, this could be a good time to buy.
When prices reach the UPPER trend line, this could be a good time to sell.
Types of Trend Channels
1. Ascending channel (higher highs and higher lows)
2. Descending channel (lower highs and lower lows)
3. Horizontal channel (ranging)
Some traders prefer to refer to ascending channels as “rising channels” and declining channels as “falling channels.” Millenials, most certainly.
Things to keep in mind when drawing Trend Lines:
Both trend lines must be parallel to each other when building a trend channel. In general, the bottom of the trend channel is a “buy zone,” whereas the top of the trend channel is a “sell zone.”
DO NOT EVER FORCE THE PRICE TO THE CHANNELS THAT YOU DRAW, like you would when constructing trend lines!
A channel boundary that slopes at one angle while the matching channel boundary slopes at another angle is incorrect and may result in bad trades. When this occurs, the chart pattern becomes a triangle rather than a trend channel.
However, trend channels do not have to be perfectly parallel. Furthermore, not all price movement must fit within the channel.
Many traders make the mistake of merely looking for textbook price patterns.
They miss critical price action information and ignore other important indications.
Take a look at the channel drawings below.
Do they appear to be flawless?
Waiting for textbook examples will not help you in the real world since price behavior that fits precisely within two perfectly parallel trend lines is unlikely to occur.
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