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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Chart Patterns: After the Buy
Getting Started in Chart Patterns, Second Edition book.
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Bulkowski's Channels

Class Elliott Wave Fundamentals Psychology Quiz Research Setups Software Tutorials More...
Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 07/29/2016
18,432 -24.11 -0.1%
7,846 -17.72 -0.2%
711 4.64 0.7%
5,162 7.15 0.1%
2,174 3.54 0.2%
YTD
5.8%
4.5%
23.1%
3.1%
6.3%
Tom's Targets    Overview: 07/14/2016
17,800 or 18,600 by 08/01/2016
8,350 or 7,600 by 08/01/2016
685 or 725 by 08/01/2016
5,250 or 4,950 by 08/15/2016
2,200 or 2,070 by 08/01/2016

Written by and copyright © 2005-2016 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

My book, Swing and Day TradingSwing and Day Trading: Evolution of a Trader book., has a section on trading channels titled, "Trading Using Channels." You can find it starting on page 15. Be sure to bring popcorn...

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When price trends upward or downward and fits between two parallel trendlines, the chart pattern is called a channel. See rectangle tops or rectangle bottoms for horizontal channels.

An up and down channel

Up and Down Channels

Channel Identification Guidelines

CharacteristicDiscussion
Price trendThe price trend leading to the channel can be from any direction.
ShapeA pipe tilted up or down, but not horizontal. See rectangle tops or rectangle bottoms for horizontal channels.
TrendlinesThe two trendlines should be parallel or nearly so. Both should tilt upward or both should tilt downward.
TouchesPrice should touch each trendline at least twice as distinct peaks or valleys.
CrossingPrice should cross the pattern from trendline to trendline, nearly filling the available space.
BreakoutOccurs when price closes outside the trendline boundary and can be in any direction.
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Channel Trading Tips

I haven’t studied channels for performance (statistics). My feeling is that they are a lot like rectangles. Just after you enter the perfect trade, price moves in a different direction and you take a loss.

Consult the associated figure on the right.

Trading TacticExplanation
Up sloping channelsTrade up channels from the long side. Buy when price rebounds at the bottom trendline (point A) and hope the breakout is upward (this works for tall channels). If price turns at the top trendline (B), then sell. Avoid going short in an up-sloping channel. If price pierces the channel, such as it does in the figure, then sell a long position or consider going short then. For position traders, ride the channel up from the bottom and sell if the breakout is downward from the channel (see the Buy and Sell notations in the figure.
Down sloping channels Trade down channels from the short side. Short when price turns down at the top trendline (point A) and be ready to cover as price nears the bottom trendline (B). Avoid going long when price is inside a down-sloping channel. For position traders, short at the top of the channel (Sell in the figure), and cover when price breaks out upward from the channel (Buy).
Partial riseIf you can determine that a partial rise has formed, then trade it. Expect the breakout to be downward. The link to the left provides more information.
Partial declineIf you can determine that a partial decline has formed, then trade it. Expect the breakout to be upward. The link to the left provides more information.
StopsIf price closes outside the channel in the adverse direction, then close out the trade and consider trading in the direction of the new trend.

Up channel trading information

Up Channel

Down channel trading information

Down Channel

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Channel Example

Channel chart pattern example

The above figure shows an example of an upward price channel. Price makes a strong up move in December, and then forms a channel at a shallower angle than the prior ascent. That momentum loss is a warning. When price closes below the bottom of the channel, that is the sell signal. Price drops rapidly before beginning a slow recovery.

-- Thomas Bulkowski

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Other Channel Examples

See Also

Written by and copyright © 2005-2016 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Very funny Scotty. Now beam down my clothes.