Trading Price Action Trends

Chapter 15

Channels

When trading is mostly confined to between a pair of lines, it is in a channel. The market is always in some kind of channel if you look hard enough to find one, and it usually is simultaneously in several, especially if you look at other time frames. A trend channel is a channel that is diagonal and is contained by a trend line and a trend channel line. For example, a bear channel has a descending trend line above (a bear trend line) and a descending trend channel line below (a bear trend channel line). A trading range is contained between a horizontal support line below and a resistance line above. Sometimes a trading range can be slightly rising or falling, but if so, it is better to think of it as a weak trend channel.

Triangles are also channels, since they are areas of price action contained between two lines. Since they have either higher highs or lower lows, or both in the case of an expanding triangle, they have some trending behavior in addition to their trading range behavior. An expanding triangle is contained between two diverging lines, both of which are technically trend channel lines. The line below is across lower lows, so it is below a bear trend and therefore a trend channel line, and the line above is across higher highs and therefore a bull trend channel line. A contracting triangle is contained between two trend lines, since the market is both in a small bear trend with lower highs and a bull trend with higher lows. An ascending triangle ...