Trend channel
Also known as: price channel
A trend channel is formed by drawing two parallel around a 's , one connecting a series of highs and the other connecting a series of lows, to mark out the upper and lower boundaries within which the has been trading as it trends. It gives a visual picture of both the direction of a trend and the typical range of movement within it.
An ascending channel slopes upward and forms during an , with the lower acting as a rising and the upper acting as a rising . A descending channel slopes downward during a , with the upper acting as falling resistance and the lower acting as falling support. A can oscillate between the two boundaries of a channel for an extended period, giving traders a repeatable framework for buying near the lower boundary and selling or taking profits near the upper boundary, so long as the trend and the channel remain intact.
A break outside either boundary of a trend channel is generally treated as a meaningful signal. A decisive move above the upper of an ascending channel can suggest the is accelerating, while a break below the lower can suggest the trend is failing. As with any pattern built from , a trend channel is a visual and somewhat subjective tool, different traders may draw the boundaries slightly differently, and a channel only remains useful for as long as price continues to respect its boundaries.