What is a horizontal channel?
Horizontal channels are trend lines that connect ups and downs with variable pivot to show the price contained between the upper resistance line and the lower support line. A horizontal channel is also known as a price range or a lateral trend.
Key points to remember
- The horizontal channels are trend lines that connect the ups and downs with variable pivot.
- In a horizontal channel, the buying and selling pressure is equal and the dominant price direction is lateral.
- A horizontal channel provides traders with specific points for entering and exiting trades.
Understanding a horizontal channel
A horizontal channel or a lateral trend has the appearance of a rectangular pattern. It includes at least four contact points. In fact, it needs at least two basses to connect, as well as two basses. The buying and selling pressure is equal and the dominant direction of the price action is lateral. Horizontal channels are formed during periods of price consolidation. The price is framed in a negotiation range by the pivot tops (resistance) and the pivot tops (support). The trend lines are drawn on pivots to give a visual image of the price action. A new price peak above the horizontal channel is a technical buy signal. A new low price under the horizontal channel (or rectangle pattern) is a technical sell signal.
The horizontal channel is a familiar chart pattern found at each time interval. The buying and selling forces are similar in a horizontal channel until a break or breakdown occurs. The horizontal channel is a powerful but often overlooked graphic model. It combines several forms of technical analysis to provide traders with precise points for entering and exiting trades, as well as for controlling risks.
How to locate horizontal channels
- Manually browse the graphics to locate the channel models.
- Use stock filters, such as Finviz.com, or a service that automatically recognizes channel models.
- Subscribe to a service that provides a daily list of chart models.
There are three types of channels: Inclined channels are called ascending channels. Inclined channels are called down channels. The ascending and descending channels are also called trend channels because the price moves more dominantly in one direction.
Buy or short-circuit a horizontal channel
Horizontal channels provide a clear and systematic way to negotiate by providing points of purchase and sale. Here are the trading rules for entering long or short positions.
- When the price reaches the top of the channel, sell your existing long position and / or take a short position.
- When the price is in the middle of the channel, do nothing if you have no open trade or keep your current trade.
- When the price reaches the bottom of the channel, cover your existing short position and / or take a long position.
Practical example of negotiating a horizontal channel
The shares of Elevate Credit Inc. have been trading with a horizontal channel since the drop on October 30, 2020. During this period, traders have had the opportunity to short short three times the stock on the upper resistance line of the canal (red arrows). Conversely, traders were able to buy the security on the lower support line of the channel three times (green arrows). Stop-loss orders are located just above the upper resistance line of the channel for short positions and just below the lower support line for long positions, while profits are simply taken from the opposite side of the channel .