Channel Pattern
A chart pattern formed by two parallel trendlines containing price action, with the upper line acting as resistance and the lower line acting as support as price oscillates between them.
A channel pattern forms when price oscillates between two roughly parallel trendlines, with the upper trendline acting as a moving resistance level (see Kaavon's "Support and Resistance" glossary definition) and the lower trendline acting as a moving support level. An ascending channel slopes upward, a descending channel slopes downward, and a horizontal channel (sometimes just called a trading range) stays roughly flat.
Traders commonly use a channel to anticipate likely reversal zones near either boundary while price remains contained within it, buying near the lower trendline and selling near the upper trendline in a range-trading approach similar in spirit to grid trading (see Kaavon's "Grid Trading" glossary definition). A decisive break outside either boundary is generally treated as a signal that the established channel has failed and a new directional move, or a different pattern, may be forming instead.
Examples
- A trader using a channel pattern might buy near the lower trendline and sell near the upper trendline, treating each boundary as a likely reversal zone while the channel holds.
- A decisive break outside a channel's upper or lower boundary is generally treated as a signal that the established range has failed and a new directional move may be beginning.