Okay so now that you know all there is to know about trend lines, what if I told you that you can take it one step further?
If you draw a parallel line at the same angle of the uptrend or downtrend, you will have created a channel.
A trend channel, also sometimes called a price channel, is a set of parallel trend lines defined by the highs and lows of an asset’s price action.
These lines typically run pretty close to parallel of each other. They are super helpful to forex traders because they help them see uptrends and downtrends.
But that’s enough talk. Let’s take a look at what a Trend Channel looks like in practice.
Similarly to trend lines, there are 3 types of trend channels.
With the trend line in place. Creating the channel is easy. All there is left to do is to copy the trend line and drag this new line into position. This new line is known as the “Channel line”.
In a bullish trend, the trend line is plotted below the price action, while the trend channel line is positioned above the highs of the price movement.
In a bearish trend, the trend line is plotted above, while the trend channel line is below the price action.
One thing that is important to understand that trend channels don’t have to be absolutely parallel and it’s even possible that one side of the trend channel is a horizontal support or resistance – in such a case, we typically speak of triangles or wedges but more on that in later chapters.
Let’s take a look at what I mean by that below.
Do you see what I mean by saying they don’t have to be absolutely perfect? Do not only look for textbook price patterns, it will ruin your life.
Ok, maybe not your life but your trading account for sure.