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The Channel Line



The Channel line is a variation of trend line. Many often we see price of stocks trending between two trend lines. Once we recognize such pattern we can use that for profitable advantage.

Drawing a channel is pretty simple once we see that a stock is in uptrend, we can join the lows made by it and the highs made by it as shown in the figure, we should get a channel like this. The same can be done in case of down trend

Lets have a look at few other examples of channels:

The main idea of channels is that under it the price fluctuates between upper and lower channel. Once recognized we can start taking benefits from such channel. As, can be seen from above charts, the channel can also provide us idle entries and exit points, we can go long as soon as the price touches the lower channel and go short when it touches the upper channel. However, in order to be profitable we should never trade against the trend. By trading against the trend we mean that in a downtrend we should avoid going long, while in an uptrend we should generally avoid going short.

Channel Breakouts:

The breakout on either side of channel should be taken as a signal for change of trend. While breaking over upper channel line is bullish sign and we can add to our long positions, on the other hand breaking down the lower channel is a bearish signal as can be seen from the following examples:

In the above example once Dow Jones broke above the upper channel it turned bullish and did preety good later on.

In the same way breakout downwards the channel is a weak signal.  

But, at this point its important to note that once a breakout happens we should not hurry up to take postion. If we are long its a good idea to put stop loss at next immediate support and wait for next few moves to confirm that the trend has actually reversed.

Few other examples of Channel Breakouts:

So, I hope you have got the concept of channel line breakout by now. Also check:

Happy Investing 
Multiplier Wealth

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  1. Replies
    1. here is the group link

    2. or search stock king abhishek ninaniya in facebook

  2. thank u
    Start blogging everyday i eagerly wait to share my knowledge withmy frnds also
    thank u

  3. Hi...
    In 2nd pic of BAX example, channel mouth seems to be expanding rather than parralel. So is it some kind of indication of near future trend of a stock?

    1. yeah broo expanding and falling of channel both have some interpretations known by different names tirangles, wedges, falling channel, expanding channels which we will be learning in our upcoming lessons stay tuned..................