CHART CHAT
Channel Surfing
In this edition of Chart Chat, we will discuss some additional trading strategies regarding price movement trend channel periods, discussed in Chapter xx of our publication When to Buy and When to Sell; Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon).
As we often discuss, trends are formed on a price chart during a series of higher-highs and higher-lows, during an uptrend, as well as lower-highs and lower-lows during a downtrend. When connecting support and resistance lines to these “pivot points,” they often depict a “channel,” indicating the trading price range of that equity. These diagonal shaped trend lines can be used in the same manner of horizontal S&R lines, however, are usually more reliable, as they are directional.
The figure below represents an example of a strong uptrend channel, which can often be traded with a high probability of success.
Ascending Channel Pattern
As you can see, price action regarding this equity was already in an uptrend, with a period of consolidation, just prior to the formation of the parallel diagonal channel period. Once in the channel, there were opportunities to buy, including the original “gap breakout,” and two other “touches” of the lower support line. There were also opportunities to sell on “touches” of the higher resistance line. Following the “Trend Is Your Friend” and the “Longer the Trend, The Stronger the Trend” concepts, several successful trades could have been made within the channel, as well as simply “holding” from beginning to end.
Also, when the trend finally “broke,” with a pierce of the support line at the top of the channel, it was time to close the trade, once confirmed with the second red candle/bar. While a trend is in play, a “breakout” can occur in either direction, however “breaks” that occur opposite the trend are signs to sell, while “breaks” in the same direction normally continue the price direction.
During an uptrend, a “break” above resistance generally creates “extended” conditions, and often results in a pullback, at least to that line. Similarly, during a downtrend, a “break” below support often results in a retrace to that line. The trend may very well continue, but traders should be aware of the likely short-term price action.
This simple to identify and draw pattern can be very useful for all investors/traders, and is very popular. There are some variations to the simple channel pattern that many investors/traders utilize, including Keltner Channels and Bollinger Bands, that are a bit more advanced, both of which are discussed in our publication.
In future editions of Chart Chat, we will continue to provide various technical pattern education, analysis, and potential price movement set-ups.
For those interested in Astrological analysis, planet positioning and transits (through the zodiac houses and signs), have many similarities to technical analysis. The theme of cycles, repeating patterns, and historical data can be viewed the same way, as the probabilities can be calculated for previous percentages of success. The difference is the use of an Ephemeris, a basic calendar of future planetary transits and aspects (see Chapter 4 of our publication for details), which allows for future positions to be known, unlike the next line, bar, or candle on a technical chart. Although no source will be 100% accurate, this extra layer can be very useful. For those interested, please refer to Trader Transits and U.S. Stock Market blogs, updated regularly on this site.
