It is one step ahead of the trend lines that have been discussed. To form a channel we need to do is draw a trend line in parallel from an uptrend, downtrend or sideways.
So, a channel is a technical analysis that can be used as a tool to determine BUY or SELL positions on target. And both the top or bottom channels can be a support and resistance level. Below is an example of drawing a channel on a chart.
A pattern that tends to rise will form a lane / channel that consistently moves up in its path. And to draw an up channel (ascending) is very easy, that is to pull two uptrend lines in parallel and in the same angle until they reach their latest peak point and do this when drawing a trend line.
A pattern that tends to fall will form a lane / channel that consistently moves down in its path. And to draw a down channel (descending) it is also very easy to pull two downtrend lines in parallel and in the same angle to get to the newest bottom point and do this when drawing a trend line 🙂
When the price touches the upper line it can be used as a selling area and when the price touches the bottom line it can be used as a buying area.
- Ascending channel (higher high and higher low)
- Descending channel (lower high and lower low)
- Horizontal channel (ranging)
Some Important Things to Look For When Drawing a Channel
- When drawing a channel, both trend lines must be drawn in parallel
- In general, the bottom line is the buying area and the upper line is the selling area
- Never force to draw a channel in accordance with market conditions and if it is not appropriate then the channel is an invalid channel as a basis for transaction