Technical analysis: What are channels?

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2020-02-08 20:11

A channel is when there is a support line and a resistance line of which ping pong the price back and forth between them. Additionally, the support and resistance lines remain at nearly the exact same distance from each other the entire time.

A channel is officially confirmed after touching each side of the channel 4 times total, alternating between support and resistance, bottom & top. Here we can see the 4 points laid out confirming the channel. Depending on what candle length you look at as to where you might draw the lines as many people will cut off the candle wick when charting however, most traditional technical analysis will tell you chart by the very tips of the wicks, the actual low or high experienced.  It is not uncommon for price action to break resistance but quickly returns without ever converting the resistance into support.  The same can happen in reverse as well. In general, the breaking of a channel generally indicates a significant price movement in one direction or the other depending on the direction it breaks, up or down.

Chainlink 7 month Channel:

chainlink ascending channel

Sometimes channels are horizontal and are often found near historical horizontal support or resistance but the bulk majority of channels are not horizontal, they are diagonal and either ascending or descending in nature. Ascending channels are typically considered bullish while descending channels are considered bearish. Channels can last from hours to years, to decades!

Below is a capture of a 10 year bull channel on the American S&P500:

SPX 10 year bull channel

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