Channel: Technical Analysis
Forex channel is one of key notions of technical analysis. It is defined as a sustainable corridor of price fluctuations with a roughly constant width.
What is Trading Channel
Trading channel is a key method used by traders to create buy and sell signals from technical charts. Trading channel provides the most important strategy that a trader can use for long time analysis and trading decisions. Usually there are two wide types of trading channels that traders will use: trend channels and envelope channels.
Formation of Trading Channel
- In an uptrend the trendlines have positive slope.
- In a downward trend the trendlines have negative slope.
Trading Channels Interpretation
- Positively sloping channel suggests that forces of demand are permanently greater than forces of supply. However a break below the lower trendline (plus certain deviation is widely common) may be a sign of the channel’s break and be considered a sell signal.
- Negatively sloping channel suggests that supply is permanently overwhelming demand. However a break above the upper trendline (plus certain deviation is widely common) may be a sign of the channel’s break and be considered a buy signal.
- Until the channel is broken the trendlines are believed to keep prices inside the channel acting as support and resistance lines.