Trading Channeling Stocks
Channeling stock is a stock that moves up and down in repeated waves between two parallel lines. A lower line is called a support best IPTV for Android TV – a resistance trendline. A support trendline connects the series of lows and resistance connects the highs. The area between these two lines is referred to as the channel. We need at least 4 dots (2 lows and 2 highs) to draw the channel. The more times the price touches and rebounds from the support and resistance lines without penetration, the more significant and reliable the channel becomes.
There are three types of channels:
– An ascending or a rising channel makes consecutive higher highs and higher lows.
– A descending or a falling channel makes consecutive lower highs and lower lows.
– A horizontal channel or a rectangle channel makes horizontal highs and lows.
Channeling offers several different efficient techniques for each type of channels. The most effective way of trading channel is to trade in the direction of the channel, going long at rising channel and shorting the falling channel. There are following basic rules of channel trading:
– Buy (or cover short position) at support level
– sell (or take a short position) at resistance level
Channel is considered “trade-able” if it consists of at least two lows and two highs.
Following is the real life example of how you can profit using this simple technique. Let’s look at the chart of QQQQ for the period from the January 2004. Now we are able to draw two trend lines – a resistance line connecting two highs and a support line connecting two lows. These lines are near parallel giving as a perfect channel. Following our basic trading rules we can place a buy order when the price crosses the support trend line and sell when the price crosses the resistance trend line. This simple technique will provide you with the perfect trading entry/exit points: sell on January 6, 2006 at 42.5 and buy on May 23, 2006 at 38.65.