Trading Using Channels

Once you can identify and draw channels with reasonable accuracy, channels can be a great source of trades. Below are some ways to trade channels.

Trading Trend Channels

1.       Look for channels with a healthy slope or angle i.e. not too steep or flat. This is a sustainable trend

2.       Confirm the market trend, identify pullbacks and entries

3.       Time exits with stop loss

Trading Reversals using Channels

1.       The channel will go against the current trend

2.       Look for reversals in steep channel slopes

Trading Breakouts using Channels

1. Await confirmation
2. Volume is key. Real breakouts move quickly with volume continuously increasing

Summary

Channels are a continuation chart pattern and are formed between two trendlines. The Upper line acts as a resistance and the lower line acts as a support. Bullish channels will have positive slopes, whereas bearish channels will have negative slopes. Sideways or horizontal channels indicate that the price is moving in the consolidation phase.