Trend Lines and Channels

Do you know how to use trend lines and channels?

Trendlines are probably the most common form of technical analysis used today, and are also probably one of the fewest used.

If plotted correctly, they can be as accurate as any other method. Unfortunately, most traders don’t draw it correctly, or try to make it fit the line according to the market.

In its most basic form, an uptrend line is drawn along the bottom of the support zones (valleys) that are easily identifiable. In a downtrend, the trend line is drawn at the top of the resistance (peaks) that are easily visible.

An uptrend line is drawn along the bottom of support zones (troughs) that are easily identifiable. In a downtrend, the trendline is drawn on top of resistance (spikes) that are easily visible.

Channels

If we take the trend line theory one step further and draw a line parallel to the same angle of the uptrend or downtrend, we have created a channel.

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

When prices touch the bottom of the trend line it can be used as a buying zone. When prices touch the top of the trend line it can be used as a sell zone.

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

To create a down (descending) channel, you draw a parallel line at the same angle as a descending line, and then move the line to the position where it touches the most recent support or bottom. This should be done at the same time you have created the trend line.

Sounds interesting to you, right? Keep learning with DTP with upcoming articles on our Blog.

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