Dancing with the LinesTechnical Beans

Dancing Within Channels – Technical Analysis

By 07/19/2013 No Comments

Dancing within channels? Now that’s a channel I’d like to watch! Channels are another form of visualizing support/resistance by an artistic combination with trend lines, when conducting the second point of the IDDA. A channel is actually the space between the support and resistance levels, which can be two parallel trend lines. In other words, you can use trend lines as support and resistance as well.

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You can create your very own forex trading channel (no, it is NOT a TV channel, nor a YouTube channel) by drawing a trend line parallel to an existing trend line.

Dancing Within Channels

Dancing Within Channels Dancing Within Channels

Sticking to our universal trading law of “buy low and sell high,” you can go long a pair, for example buy the euro against the dollar when EUR/USD’s price is near the bottom of the channel, and sell it when the price gets close to the top of the channel.

 

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Which is your True Friend?

Remember how we said the trend is your friend? So which trend line in a channel is your true friend? Here is the answer:

– The Support line is your friend in an uptrend; you want to buy around the support level.

– The Resistance line is your friend in a downtrend; you want to sell around the resistance level.

Just like trend lines, channels also come in different variations with cool names: flat, ascending or descending. I think the names are pretty self-explanatory so won’t get more into it.

Important Note: Do not ever force the two lines of the channel to become parallel! If the prices are getting in the way, then you just can’t use the channel as a technical tool. Learn to let it go.Seriously!

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