{x} | Trading.live

Price channels, also known as Trend Channels, are an important tool in technical analysis and are an extension of trend lines.

Instead of plotting a simple trend line, the price channels comprise of two trend lines, upper and lower trend lines. Trade signals are taken when price breaks out of the upper or lower trend lines or the price channel. When combined with support/resistance methods and candlestick patterns, trading price channel offers a great way to trade the markets. It is worth mentioning, however, that price channels trading requires quite a bit of practice and analyzing the market structure.

Three Types of Price Channels

Bullish Channel

Bullish Channel is also known as Ascending, Upward, Inclining Trend Channel, which is a price channel where the upper trend line connects the price points of higher swing high’s, and the lower trend line connects the price points of higher swing low’s. Price action accelerating above the upper trend line indicates a strong bullish momentum, but if, at any given point of time, price action closes below the lower trend line indicates that there is a huge possibility of market changing its direction.

Let take a closer look at the example above. The lower level of the channel plays the role of a support and the upper level acts as a resistance. The black arrows on the chart point to the support and resistance channel function on the chart. See that when the price decreases to the lower level of the channel, it bounces upwards. Then the price seeks interaction with the upper level of the channel and tends to bounce downwards and vice versa.

Bearish