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Method of Operation1

The document discusses technical analysis techniques for identifying trends in price movements of assets. It explains that a channel line is drawn parallel to a trend line to define an area that prices typically move within. Channel lines can act as boundaries to predict where prices may go next and indicate changes in the overall trend.

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6 views

Method of Operation1

The document discusses technical analysis techniques for identifying trends in price movements of assets. It explains that a channel line is drawn parallel to a trend line to define an area that prices typically move within. Channel lines can act as boundaries to predict where prices may go next and indicate changes in the overall trend.

Uploaded by

SOURAV
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Technical analysis line drawing

Channel

Imagine you're looking at a graph that shows how

the price of something, like a stock or a

commodity, changes over time. Trend lines are

lines that you can draw to show the general

direction in which the price is moving. If the price

is going up over time, you can draw a line that


connects the low points, and if the price is going

down, you can draw a line connecting the high

points. This line helps you see the overall trend.

Channel lines:

Now, a channel line is like a friend of the trend line.

It works with the trend line to give you more

information. Once you have your trend line, you

can draw another line that's parallel to it. This

parallel line is called the channel line. To draw this


channel line, you use the first highest point (peak)

and the first lowest point (trough) that touch the

trend line.
Channel types
1. Up Channel
2. Down Channel
Up Channel:
An up channel is a visual representation of price

movement on a chart that shows an upward trend.

It consists of two lines: a trend line and a channel

line.

Trend Line: The trend line is drawn by connecting

the successive low points on a price chart. These

low points indicate where the price has


temporarily stopped falling and started to rise. This

line shows the general upward direction of the

price trend.

Channel Line: The channel line is drawn parallel to

the trend line. It's created by connecting the first

low point (trough) that touches the trend line and

the first high point (peak) that follows it. This line

acts as the upper boundary of the channel.

Channel Area: The space between the trend line


and the channel line forms the channel itself. This

area represents a range within which the price

tends to move during the upward trend.

Price Behavior: In an up channel, the price

typically bounces between the trend line and the

channel line. It might move upward, touch the

channel line, and then reverse back toward the

trend line before continuing its upward climb.


Down Channel:

A down channel is the opposite of an up channel

and represents a downward trend.


Trend Line: The trend line in a down channel is

drawn by connecting the successive high points on

the chart. These high points indicate where the

price has temporarily stopped rising and started to

fall. This line shows the general downward

direction of the price trend.

Channel Line: The channel line in a down channel

is parallel to the trend line and connects the first

high point (peak) that touches the trend line with


the first low point (trough) that follows it. This line

acts as the lower boundary of the channel.

Channel Area: Similar to the up channel, the space

between the trend line and the channel line in a

down channel forms the channel area. Within this

area, the price tends to move during the

downward trend.

Price Behavior: In a down channel, the price

usually moves between the trend line and the


channel line. It might move downward, touch the

channel line, and then bounce back toward the

trend line before continuing its downward descent.


Why is this channel line important?
Well, it acts like a boundary for the price

movement. If the price stays between the trend

line and the channel line, it's like the price is

moving within a kind of channel. This can help you


predict where the price might go next. If the price

moves outside this channel, it could indicate a

change in the trend or a stronger movement.

Road/Pipeline

Think of the trend line as the main road the price is

traveling on, and the channel line as the guardrails

that keep the price from wandering too far off the

road. It's a tool that traders and analysts use to get

a better idea of where prices might be headed


based on the historical pattern.

So, in short, a channel line is a parallel line to a

trend line that helps you see a price's movement

boundaries, like guardrails on a road, and can give


you insights into potential future price changes.

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