In technical analysis, channels are another tool that traders use to determine the point at which to enter the market. Channels are fundamentally linked to trend lines, as each channel is created by drawing a parallel line at the same angle of the uptrend or downtrend. In addition, channels are directly associated with support and resistance levels, since the two lines that create a channel represent exactly these levels.
As shown in the chart above, there are three types of channels:
Ascending channel: Defined by higher highs and higher lows
Descending channel: Defined by lower highs and lower lows
Sideways channel: Ranging highs and lows
As with support and resistance levels, channels can be used to detect the direction in which an asset’s price is likely to move. In addition, they help traders determine the points at which to enter or exit the market.
If overwhelmed by pessimism and falling prices, the FX market is defined as “bearish”, while if characterised by optimism and rising prices, it is called “bullish”. These two terms derive from the way in which bears and bulls attack their opponents, with the former swiping its paws downwards and the latter thrusting its horns upwards.
Word of the day
"Simple Moving Average (SMA)" - A representation of an asset’s average price over a period of time.
Stable Internet connection is a pre-requisite for trading.