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Channels

|  1272 views  |  Category: Support and Resistance  |

If we take a trend line and draw a parallel line at the same angle of the uptrend or downtrend, we will have created a “channel”.

Channels are just another tool in technical analysis that can be used to determine good places to buy or sell.

The upper trend line marks resistance and the lower trend line marks support. So both the tops and bottoms of channels represent potential areas of support or resistance.

Trend channels with a negative slope (down) are considered bearish and those with a positive slope (up) are considered bullish.

Trend Channels

To create an up (ascending) channel, simply draw a parallel line at the same angle as an uptrend line and then move that line to a position where it touches the most recent peak. This should be done at the same time you create the trend line.

To create a down (descending) channel, simply draw a parallel line at the same angle as the downtrend line and then move that line to a position where it touches the most recent valley. This should be done at the same time you create the trend line.

 

When prices hit the LOWER trend line, this may be used as a buying area.

When prices hit the UPPER trend line, this may be used as a selling area.

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