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Chapter 3 - Introduction to charts
Price Channels
The price channel line, or the sometimes so-called rebound line, is another useful method complementary to the trend line, where prices are confined between two parallel lines between the primary trend line and the channel line, so when we realize that there is a channel within which prices are confined, we can make more profit.
The channel line is characterized by its relative simplicity, where the trend line is drawn and then, a line parallel to the trend line is drawn.
On the uptrend: - First, the uptrend line is drawn and it represents the line connecting the rising troughs, i.e. it represents a support level sloping below the market, while the up channel line represents the line connecting the rising peaks, and it represents a resistance level sloping above the market.
The up trend line represents the lowest points that sellers reach, which are the points at which buyers begin their buying activity to push prices up,
While the up channel line is the maximum points that buyers reach. They are the points at which sellers begin their selling activity to push prices down towards the trend line again.
In a down trend: - First, the down trend line is drawn and it represents the line connecting the falling peaks, i.e. it represents a resistance level sloping above the market, while the down channel line represents a line connecting the falling troughs, and it represents a support level sloping below the market.
The down trend line represents the maximum points that buyers reach, which are the points at which sellers begin their selling activity to push prices down towards more lower prices.
While the down channel line is the lowest points that sellers reach. They are the points at which buyers begin their buying activity to push prices up towards the trend line again.
- The channel lines represent the slope of the second end of the trend line equation. The up trend line represents the timing of the emergence of buyers in bullish markets, while the down channel line represents the timing of the emergence of the opposing forces, which are the selling forces. The same applies to the down trend line that represents the timing of the sellers appearing in the bearish markets, while the down channel line represents the timing of the emergence of the opposite forces, which are the buying forces.
- Price channels are usually characterized by the presence of a price ratio between the fundamental waves forming the trend and the corrected waves.
