Trend channels

Trend channels

Trend channels also classified in two types: Ascending trend channel and Descending trend channel. Trend channel is a parallel line that trace against the trend line, connecting the significant tops in an up trend and the significant troughs in a down trend.

Ascending trend channel is formed when connecting the price tops of a particular share compose an upward sloping line parallel to a line connecting the bottoms of that share, the channel is the area between these two lines. Ascending trend channel is results from increasing strength of buyers and a corresponding decrease in the strength of sellers. In ascending trend channel, the price was moving upwards at a steady pace for the period, there was a great deal of movement within that range. Prices rally up from the bottom of channel line but fail to reach the upper channel line.

Descending trend channel is formed when connecting the price bottoms of a particular share compose a downward sloping line parallel to a line connecting the tops of that share, the channel is the area between these two lines. Descending trend channel is results from decreasing strength of buyers and a corresponding increase in the strength of sellers. In descending trend channel, the price was moving downwards at a steady pace for the period, there was a great deal of movement within that range. Prices drop from the upper of channel line but fail to reach the bottom channel line.

Trading signals

1. If prices break through the upper line in an ascending trend channel, an acceleration of the existing uptrend is signaled. At this point, some investors will buy additional positions.

2. If prices move through the bottom line of a descending trend channel, the existing downtrend appears to be picking up pace. Short positions may be increased at this point.

3. Volume increases as price reaches the bottom of the channel and the top of the channel. This could signal that there are supply and demand constraints within the trend channel. If a price penetrates the upper or lower channel lines, it could signal a change in trend.

4. A channel is an attractive chart pattern for traders, since the number of buying signals is approximately doubled by the number of selling signals. The share price basically vacillates between the upper channel line and bottom channel line.

5. Traders often use trend channels to determine good profit-taking levels. For example, in an ascending trend channel, they will sell a share when it reaches the upper level of its trend channel, and buy a share when it reaches the bottom level of trend channel.

Examples of Ascending trend Channel:

Mems [0052]

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Maybank [1155]

Uchitec [7100]

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Examples of Descending trend Channel:

Dxn [5074]

Patimas [7042]

Putera [2895]

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