Stocks & Commodities V. 23:12 (70-71): Charting The Market by David Penn

Stocks & Commodities V. 23:12 (70-71): Charting The Market by David Penn
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Stocks & Commodities V. 23:12 (70-71): Charting The Market by David Penn

CHANNELLING

If one trendline is good, are two trendlines better? Thatís one way of summing up the attraction many people have with channeling and trend channels. A technician could even see trend channels as the difference between those who prefer to draw their uptrend lines from the lowest low to the highest low and those who prefer their uptrend lines to ride on top, projecting forward from the lowest high.

Writing about trend channels, their relationship to trendlines, and how these channels can be profitably traded, in his excellent book Trading For A Living, Alexander Elder notes that:

"Channel lines, like trendlines, should be drawn across the edges of congestion areas, leaving out the extreme highs and lows. The presence of a channel line reinforces the validity of the trendline itself. The validity of channel lines depends on how many times they were touched by prices. A channel line marks the area of bullsí maximum power in an uptrend and bearsí maximum power in a downtrend. The wider the channel the stronger the trend. It pays to trade in the direction of the channelís slope, going long in the lower quarter or half of a rising channel and selling short in the upper quarter or half of a falling channel. Profits should be taken at the opposite channel wall.




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