Forex Channel - Trading Channels

Channel is one of key notions of technical analysis. It is defined as a sustainable corridor of price fluctuations with a roughly constant width.

Formation

Visually the channel is described by two parallel trendlines, a support below connecting important lows and a resistance above connecting important highs.

• In an uptrend the trendlines have positive slope.
• In a downward trend the trendlines have negative slope.

Interpretation

• Positively sloping channel suggests that forces of demand are permanently greater than forces of supply. However a break below the lower trendline (plus certain deviation is widely common) may be a sign of the channel’s break and be considered a sell signal.
• Negatively sloping channel suggests that supply is permanently overwhelming demand. However a break above the upper trendline (plus certain deviation is widely common) may be a sign of the channel’s break and be considered a buy signal.
• Until the channel is broken the trendlines are believed to keep prices inside the channel acting as support and resistance lines.