Channel / Trend Channel
Reference values based on Bulkowski's "Encyclopedia of Chart Patterns". Data is primarily from U.S. markets and may differ for other markets.
A pattern where price moves between two parallel trendlines. There are three types: ascending channel, descending channel, and horizontal channel, each indicating the trend direction and price range. The repetitive price action within the channel allows for buying at the lower boundary and selling at the upper boundary. A breakout from the channel signals a potential trend change.
Enter long when price touches and bounces from the lower channel boundary (support). Enter short when price touches and reverses from the upper boundary (resistance). After a channel breakout, enter in the breakout direction.
For trades within the channel, the opposite trendline is the target. For breakout trades, project the channel width from the breakout point. For example: if the channel width is 80 and the upward breakout is at 1020, the target is 1100.
For long positions at the lower boundary, place a stop-loss slightly below (10-20% of channel width below) the lower boundary. Similarly for short positions at the upper boundary.
Within a healthy channel, volume increases on moves in the trend direction and decreases on counter-trend moves. Volume surging at breakout enhances reliability.