Channels can be found by drawing trend lines
. The support and resistance trend line
MUST be parallel to eachother to be valid channels. Channels give us an idea of the "trading range", if a channel has bounced off the bottom at least 2-3 times and the top 2-3 times, it is relatively safe to buy the bounce of the support the 3-4th time and sell once it reaches resistance. The lower trend line
is a buying area and upper trend line
is a selling area, but they must be tested some times (2-3) to be proven valid and a safe trading opportunity. We usually use tight stop losses, about 5-7% under our entry and below support level
, as channels can break out and have significant downside / upside movements. If a channel breaks on the upside, it usually retests the top resistance as support, and proceeds to rally upwards. This is usually a good trading opportunity. Once you see the price bounce off previous channel resistance (now support) and begin to move up with some volume
, you can enter a trade in a relatively safe manner.