Trading Channel Tool

A trading channel tool can provide investors with both entry and exit points, in both uptrends and downtrends. This makes the trading channel a very versatile charting tool that investors need to be familiar with.

For those that like the thrill of trading rather than just buying and holding a position, consider drawing a trendline that divides the trading channel in half. A Regression Trading Channel serves mostly the same purpose.

Trading channels, when placed properly on a downtrend, can also be used to identify when the downtrend is over.

Components

I am going to start with a normal Trading Channel Tool.  The various components of a Trading Channel Tool include:

• 3 Anchor Points - Anchor points are used to place the Trading Channel Tool on a stock chart

• Border Lines - The border lines are automatically drawn as the 3 anchor points are being placed on the stock chart

The anchor points and resulting border lines would look something like this:

Just like the other Charting Tools I cover, the Trading Channel Tool can be used on candlestick charts covering different lengths of time such as 5 minute charts, hourly charts, daily charts, weekly and even monthly charts.

However, I find a Trading Channel to be more effective and consistent as a Charting Tool when used on.....

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