The Channel is an area or space created by Scrip movements in space/range which is having resistance indicated by tops and support indicated by low of an asset. Channels are the simplest of chart patterns to identify. All we have to do is sketch a line joining tops of a stock and same with the bottoms of stock. The Lines would roughly be parallel to each other or can be in the shapes of wedges. When you start joining tops & bottoms with Lines then you would realize that all the tops & bottoms you just joined make some sense. Yes, If you have discovered this, then you are on right track. See image below (Self-explanatory).
Buy at supports and sell at resistance
See few Live trading examples using Channel trading. Few of you must have worked on these calls and surely reaped profits out of it. But, before that, let’s see what happens when the so-called ” Trading Channel ” is broken by price. See Image below. Upper Part of an image shows a Price BREAKOUT
Entry (My style): The breakout from range should be with high volume. I enter/buy half Qty. On breakout. The stock will come back to retest the resistance it broke (which now becomes support).
Our stop-loss is just below the Entry line (Minor support level). If the stock holds the line and starts moving up from the Entry line. I buy the rest of the position.
Targets: The simple way is to just measure the breadth of the channel and then assume target equal to that.
The lower part of the image shows a Price Breakdown.
Entry, stop-loss and Targets Vice versa as explained above.
Buy on breakout, Sell on breakdown
Channels can be very powerful tools in the arsenal of a technical trader.Now, Let’s see TRADING EXAMPLES for Trading using Channels.