A Trend Channel Trade by Thomas Bulkowski
Here's a trade that combines fundamentals, trend channels, pattern recognition
Selecting a stock to trade means more than just throwing darts. For my own trading, I use statistically positioned
trend channels, a method that allows me to define the boundaries of a trend. When dealing with trend channels,
you're faced with a declining stock that you still want to purchase. What makes you so sure that the stock will turn
around and climb instead of plummeting? Here's a top-down approach to trading the trend channel, using market trend analysis as a starting point and technical analysis to determine buy and sell points, illustrating a trend channel
with the resulting trade.
TRENDS AND INDUSTRY SELECTION
The hardest thing to do when I first started investing was to sell a security. Now, I find that both buying and selling
are difficult when trading the trend channel. In buying securities in the channel, you are betting that the stock will
cease its downward plummet, reverse direction and go up again. But there is no assurance that it will do so.
However, the channel boundaries give the investor excellent indications of where to buy and sell: All you need to do
is to pull the trigger. I play the trend channel by buying at the lower channel boundary and selling at the higher
boundary, on one cross of the channel. Simple.