The investors looking for other means of technical analysis to determine the best point to execute trade will certainly love the trade channels. This tool embraces the potential areas for resistance and support in both in top and bottom channels
If you are inclined to create an ascending channel, you should draw a line parallel to the uptrend after which, try to move and place that line so that it touches the latest peaks. It is important to do this simultaneously with the trend line creation.
In order to create a descending channel, you should draw a line parallel to the downtrend, following this, move the line and place it in a point to touch the latest valley. This as well as in case of uptrend should be done simultaneous with line creation.
The buying and selling times are characterized by prices rise and fall. So far when the prices touch the below trend line, this can be considered a good time for buying. On the contrary when the prices appear close to the upper trend, investors should sell.
It is common to illustrate the channel with two parallel trendlines, one of which is the support, which is responsible for connecting essential lows, and the second is the resistance, to take up the linking of the key highs.
- The trendline has a positive slope in the uptrend,
- The trendline is negative when it is in downtrend.
- In case of positive sloping channel, it is assumed that the power of demand should be greater than the power of supply. Still, if the currency price cracks below the trendline, this can be a signal to sell.
- On the contrary, when the demand is lower than the supply, we deal with the negatively sloping channel. In case of negatively sloping channel, if the currency price cracks the upper trendline, this should be interpreted as a signal to buy.
- Before channel break through, the trandlines remain inside the channel keeping the prices operate between support and resistance lines.