If we take the trend line theory one step further and draw parallel lines at the same angle with the uptrend or downtrend, we will produce a channel.
Channel just another tool in technical analysis that can be used to determine a good place to buy or sell. Both the upper and lower channels are potential areas of support and resistance.
To create a channel (up) to the top, simply draw a line parallel to the same angle as the uptrend line and then move to a position where the line touches the most recent peak. This should be done at the same time when you make a trend line.
To create a channel (down) to the bottom, simple draw a parallel line at the same angle as the downtrend line and then move to a position where the line touches the most recent valley. This should be done at the same time you make a trend line.
When the price touches the lower trend line, this can be used as a buy area. When the price touches the upper trend line, this can be used as a sell area.
There are three types of channels:
Ascending channel (the higher and lower higher)
Descending channel (upper lower and lower down)
Horizontal channel (sideway)
Important things to remember about the trend line:
When creating a channel, the trend line should be parallel to each other.
Generally, the bottom of the channel is considered as a buy zone while the channel is considered as a selling zone.
As in drawing trend lines, NEVER force the price at which your image channel!