Level 4 · Lesson 7 of 16 · 6 min read
Channels and Ranges
When price moves in a corridor, the walls become your trading plan.
Researched and written by Laurent What is a Channel?
A channel is formed by drawing two parallel trend lines on a chart: one connecting the swing highs (the channel top) and one connecting the swing lows (the channel bottom). Price bounces between these two walls.
Three Types of Channels
Ascending Channel
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Higher highs and higher lows. Uptrend channel. Buy at the bottom, sell at the top, or wait for a breakout above the top.
Descending Channel
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Lower highs and lower lows. Downtrend channel. Sell at the top, buy at the bottom, or wait for a breakdown below the bottom.
Horizontal Range
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Flat top, flat bottom. Price consolidating. Buy support, sell resistance, or trade the breakout when it comes.
The Range Breakout
Ranges are like springs being compressed. The longer price coils between two flat levels, the more energy builds up. When price finally breaks out, the move is often proportional to the height of the range.
Beware false breakouts. Price sometimes pokes through the edge of a range and snaps back. Wait for a candle to close outside the range, not just pierce through. Volume confirmation (if available) makes the signal stronger.
Key Takeaways
- • A channel is two parallel trend lines: one connecting highs, one connecting lows.
- • In an upward channel, buy near the lower line, target the upper line.
- • A range is a horizontal channel where support and resistance are flat.
- • Ranges end with breakouts. The larger the range, the bigger the breakout move tends to be.