Chapter 16

Micro Channels

Amicro trend line is a trend line on any time frame that is drawn across from 2 to about 10 bars where most of the bars touch or are close to the trend line and the bars usually are relatively small. Typically a trend channel line can be drawn along the opposite ends of the bars as well, and the result is a very tight channel called a micro channel. Unlike a conventional channel where pullbacks are common, a micro channel progresses with no pullbacks, or rare, small pullbacks, making it an extremely tight channel.

The more bars, the stronger the bars (like bars with big trend bodies in the direction of the micro channel), and the smaller the tails, the stronger the micro channel, and the more likely that the first pullback will fail to reverse the trend. A micro channel can last for 10 or more bars, and other times it will run for about 10 bars, have a small pullback, and then resume for another 10 bars or so. It does not matter whether you view the entire channel as one big micro channel (a micro channel is a type of tight channel), two consecutive micro channels separated by a small pullback, or a large tight channel, because you will trade it the same way. The trend is very strong and traders will look at reversal attempts to fail and become pullbacks and for the trend to continue.

Ten years ago, traders saw micro channels as a sign of program trading. Now, since most trading is done by computers, it adds nothing to say that micro channels are signs ...

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