Channels

Channels Channels Channels Video Clip Continuation patterns, these patterns usually indicate that the sideways price action on the chart is nothing more than a pause in the prevailing trend, and that the next move will generally be in the same direction as the trend that preceded the formation. The most popular and one of the most reliable continuation patterns is the Narrow Sideways Channel. It is generally considered a continuation pattern, but only in the respect that it is happening in a strong trend, and only then do we give it a stronger bias towards the trend. Later in this course, we discuss the ever popular triangle and pennant patterns which hold a much stronger bias towards the underlying trend than does the narrow sideways channel. Notice how often I use the word "usually", or "generally". The treatment of all chart patterns deal with general tendencies as opposed to rigid rules. There are always exceptions to every rule. Narrow sideways channels sometimes act as continuation patterns, but can also act as reversal patterns as well. This is also true for the triangle and pennant formations. Chart patterns generally fall into one of the two categories we previously discussed, continuation or reversal patterns, and although exceptions are made in every case, if properly interpreted, they can be a tremendous help in determining what the markets will probably do in most cases. Simply put, when using chart patterns to help us predict market direction, we are doing nothing more than trying to put the odds of market direction in our favor. Horizontal or Sideways A horizontal or sideways is a formation that features both resistance and support. Support forms the price bar lows, while resistance provides the price ceiling. Chartists generally trade this formation by placing buy and sell stops above and below the channel, then use the unfilled order as a stop loss order. Example:

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