2. Channels

Connecting, at least two, highs (to get the Upper Trend Line), and, connecting, at least two, lows (to get the Lower Trend Line) will generate one of the three patterns described below:

Ascending Channel:

Ascending channel would normally have higher highs, and, higher lows (as shown below).

The two down arrows provide us with two highs, and, the two up arrows give us two lows. As the line joining the two highs, and, the line joining the two lows are near parallel, we get a channel. It is evident by just looking at the chart that it is an ascending channel, as the price has made higher highs, and, higher lows.

Before initiating any position, we will wait for a while to confirm if the price remains within the channel. In the example below, I choose to wait for 3 candles to bounce off of the support and resistance lines. The region selected by the diamond box in the figure below confirms that the lower trend line is not broken. Hence, we decide to buy to book profit; as shown in the figure below.

Be careful while choosing the highs and the lows to form the channel. Trading price action/channel trading is not an exact science. Slight deviations can be ignored.

If a clear channel is not spotted, don’t trade. 

Now watch this video where I explain everything clearly.

Homework assignment:

Send in 2 charts on which you have drawn the channels.

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