We all have a different concept of the word channel. Don’t we? While it is probably commonly connected to the television, channels also exist in waterways and oddly enough, in Forex trading as well. You know that technical analysis includes several different elements, right? Well, channels just happen to be another part of that package.
What Can I Use This Channel For?
A channel can help you to determine a good or a bad place to buy or sell your currency pairs. The channel charting will reveal to you tops and bottoms of each channel. They will show you potential locations where support or resistance can develop.
The Different Types of Channels
You had to see this coming. There are a few different types of channels. As tempting as it is to say that the three categories of channels are called news, sports and information that would be seriously wrong. The three Forex channels are Ascending, Descending and Horizontal.
1 – The Up Channel
An up or ascending channel is formed when a line is drawn parallel and at the same angle as what you would see as an uptrend line. The new line, moved to where it connects with the last recorded peak and you now have an ascending channel.
2 – The Down Channel
Because the world of Forex trading revolves around the science behind opposites, what do you think creates a descending channel? If you said it was a parallel line matching the angle of a downtrend line that connects to the last recorded valley you would be right and we’d be wondering why you were still sitting here and not out there making some rather spectacular trades.
3 – The Ranging Channel
The horizontal channel is nothing like the previous two but it creates another interesting visual that can help you to identify potential trade times or positions.
Things To Remember
Channels are your tool. It is up to you to figure out where they exist and to draw them out for your use. The key to proper channeling is the trend lines. Your channel comes from them and the line your draw must be parallel to a trend line in order to properly function as a channel. It sounds like a lot of rules to follow for just adding a line to a chart but for those technical analysis nerds, the more accurate your data collection and mapping, the better analysis you will end up with.
When Should You Buy Or Sell With A Channel?
Well, the bottom of a channel is what you may want to focus on more than anything else. That’s because the channel bottom is generally considered the kill zone. Okay, we added that for some drama. The bottom of a channel is usually a good indicator of a buy zone. The top of the channel – remember we deal in opposites here in Forexland – is an indicator of selling or is a sell zone. The trends will reveal themselves so don’t try to make one where there isn’t one. Channels are the same. They only work when the trend is properly identified and not imagined.