A chart pattern where a security trades within two parallel trend lines. A breakout occurs when trading takes place outside the channel formed by these lines: that is above or below either trend line. A trading channel can be horizontally flat or upward/ downward sloping. When a channel is horizontal or relatively flat, the market is said to be- most of the time- a good buy near the bottom of the channel and a good sell near the top. In which case, traders are advised to buy in the first scenario and sell in the second.
When the trend changes direction, moving up and a channel experiences sharp rises, an upside penetration of the upper trend line indicates a very strong bullish momentum.
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