How to trade ascending, descending and horizontal channel Patterns?
Today we are going to learn about Channel pattern
The channel is a powerful yet often overlooked chart pattern and combines several forms of technical analysis to provide traders with potential points for entering and exiting trades, as well as controlling risk. The first step is to learn how to identify channels. The next steps include determining where and when to enter a trade, where to place stop-loss orders, and where to take profits.
Channel Elements:
A channel occurs when the price of an asset is moving between two parallel trendlines.
1. Upper Trendline: The upper trendline connects the swing highs in price. If price breaks out of a trading channel to the upside, the move could indicate that the price will rally further.
2. Lower Trendline: The lower trendline connects the swing lows in price. If the price breaks below the bottom of the channel, on the other hand, the dip indicates that more selling could be on the way.
3. The channel can slant upward, downward, or sideways on the chart.
Types of Channels
A channel consists of at least four contact points because we need at least two lows to connect to each other and two highs to connect to each other. Generally speaking, there are three types of channels:
1. Channels that are angled up are called ascending channels.
2. Channels that are angled down are descending channels.
3. Ascending and descending channels are also called trend channels because the price is moving more dominantly in one direction.
4. Channels in which the trendlines are horizontal are called horizontal channels or rectangular trading ranges.