Trendlines and Channels

Channels and Trendlines are both very useful tools in technical analysis for traders. They let the traders visualize the changes in the prices of assets using direction. In essence, trendlines deal with making price projections and identification of trends from the market.

When speaking in terms of trendlines, it is simply a straight line that results from joining critical price points on one chart, connecting consecutive fledgling highs in a down trend or lows in an uptrend. This makes it clear the direction that the market has been going. Therefore, it means that in a slope upwards, higher highs and higher lows when on an uptrend and lower highs and lower lows for a downtrend will create a downward slope on the line. Dynamic support or resistance line can also be formed which is where the price can bounce from.

Like with trendlines, the addition of a parallel line next to it forms two opposite surfaces, and that is how channels make. Channels may either slope up, down, or remain flat depending on the accompanying trend. While the upper boundary of the channel represents resistance, the lower boundary represents support; hence, traders use these boundaries to identify points of potential breakouts or reversals, as well as entry and exit strategies.

Such structures, trendlines, and channels help simplify all the important complexities of the markets in bring out clearer patterns, and identifying potential opportunities. Including them into one's analysis will allow more accurate anticipation breakdowns in terms of price behavior, and formulation of better strategies aimed at successfully riding the market trend.

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~ Nesaty