Channeling is one of the most important tools available for chartists. This is used in the continuation of the upward or downward trent , as part of a trend following strategy. However it is not a definitive method as there can be multiple retests of the channel lines.
By definition a channel can be considered to be formed when the two parallel lines (or nearly parallel lines are tested at least twice.
Draw the trendline for channelling on as many time frames. Start with the higher duration time frame first and the move down to the lower ones. In an uptrend connect the lows and in down trend connect the highs.
Precautions in channelling
It should be borne in mind that the markets can test the channel lines multiple times AFTER BREAKING. This is of great relevance as this can create lot of losing whipsaws.
Few important things in channelling techniques
- Normally the breakout or the breakdown always takes place with multiple testing of the particular trendline. This will be clear from the example below
You can see the multiple retests of the lower channel line before the market slips into the fall. However in the second fall in january, there is no retest on the daily charts. However in the smaller time frame of 15 minutes you can see multiple retests before the big fall.
The multiple tests and the subsequent fall -how much lower or the markets can go , is a matter of many parameters which we will discuss in forthcoming lessons.
- Choose the daily chart of reliance and draw the trend and the channel .
Confirmation by elliot wave count at break of channel. This will be covered after the elliot wave count.