Trend Channel Lines in Price Action

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  • Trend Channel Lines in Price Action
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Wednesday, January 6, AM Channels and Channel Lines Channel Lines At times the price will tend to move in a channel between a trend line and a line parallel to the trend line. The later is called a channel line or a return line.

Price Channel Price Channel A price channel is a continuation pattern that slopes up or down and is bound by an upper and lower trend line. The upper trend line marks resistance and the lower trend line marks support. Price channels with negative slopes down are considered bearish and those with positive slopes up bullish. Main Trend Line: It takes at least two points to draw the main trend line.

When these are identified, they represent a clear exit point for an entry taken in the direction of the current trend. Aggressive traders may also use the channel line as an entry point for a trade against the trend, though trading trend line channel the trend is not advisable as those trades tend to carry a higher risk and tend to carry a higher failure rate than trades taken in the direction of the trend.

trend line channel

Another significant signal is the failure of the price to reach the channel line. This could precede a break of the trend line and a possible reversal of the trend.

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Drawing Channel Lines In an uptrend, your trend line will be supporting the price line along the reaction or retracement lows. A channel line can be drawn along the highs of the peaks parallel to the trend line. Conversely, in a downtrend, your trend line will be along the reaction highs of price line with the channel line drawn along the lows of the dips, parallel to the trend line.

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The price must bounce off the channel line at least twice to confirm the channel. The more test of the trend line and channel line, the more significant the channel becomes.

trend line channel

But it must be remembered that the trend line always remains more significant than the channel line. Using Channel Lines An entry signal is given when the price tests the trend line without violating it.

trend line channel

In this event, the trade is initiated in the direction of the trend with a stop loss located just below the trend line. The channel line can be used as a price target at which to take profit.

trend line channel

More aggressive traders may use the test of the channel line as an entry for a trade against the trend, with the stop loss set just above the channel line trend line channel a profit target at the trend line.

However, this trade is against the trend and tends to be less successful. At times the price may bounce off the trend line but fail to reach the channel line.

Trendlines and Channels Important: This page is part of archived content and may be outdated. Trend is a general direction of the price. Prices do not only rise or fall but most of the time they actually move in narrow ranges. As a general rule, market consolidates prior to a rapid price rise or fall.

This could indicate a weakening of the trend and may precede a break of the trend line. Should the trend line be violated on strong volume, a entry against v1 indicator for binary options trend may be initiated with the stop loss just above the violated trend line with the price projection for taking profit set at the height of the channel in the direction of the trade.

Chart Example A channel can clearly be seen on trend line channel following 30 minute intra-day chart of the Japanese Nikkei Futures Index.

trend line channel

The Nikkei was in an uptrend when it initially made a peak at 15, at PM on November 15, before falling back to 15, at AM on November 18, It then rallied back up but made a lower high at 15, at PM on November 18, This formed the second peak for the resistance line.

At AM on November 19,the second low was formed at 15, The two highs and two lows formed the channel. At PM on November 19,the Nikkei broke through the upper resistance channel line and closed at 15, It wasn't able to maintain this level, falling back into the channel and reaching the mid-channel line before finally breaking out at AM on November 20, The price target at approximately 15, was reached at the following day.

trend line channel

Trading the Channel on the Nikkei chart.