Stocks are like race cars which move on race tracks. Divide the race track into 3 or 4 parallel tracks. Stocks tend to hit one end of this race track and then move to the other end. (not kidding) Stocks Tend to get out the channels if they had remained inside it for very long.
A small article from Investopedia Channeling: Charting A Path To Success
Channels change over time.
A stock which moves up a steep channel would not remain forever in rising mode.
It would some day crack the lower lane of the channel and make a fall or go sideways.
How the stock falls could make flags patterns which are again channels. Some times stocks when consolidation or correcting would make triangles, which is a converging channel.
Always make channels with 3 lines. Upper line, Middle LIne and central line.
when a stock kisses the upper line and fall under the middle line.. we can short assuming that the stock would touch the Lower Line of the Channel.
When a stock kisses the lower channel and moves up through the middle channel again we can get long assuming the stock would tend to kiss the Upper channel.
The middle channel gives a guiding idea on, where the stock is compared to the extremes and is very useful in trailing positions. For example if some one is long and the stock remains on top of middle channel he should let the position run.
Channel trading gets more power when you add ideas from
Ratracement and Extensions
and some Time Cycles into it.
More on this additional ideas later on. Got a view? Do post ur comment.
Ever used Live data to trade real time channels?
Try EagleEye Trading?