What is 'Horizontal Channel'

Horizontal channels are trendlines that connect variable pivot highs and lows to show the price contained between the upper line of resistance and lower line of support. A horizontal channel is also known as a price range or sideways trend.

BREAKING DOWN 'Horizontal Channel'

This horizontal channel or sideways trend is also a rectangle pattern (dotted lines show the pattern). Buying and selling pressure is equal and the prevailing direction of price is sideways. This happens in periods of price consolidation. Price is framed out in a trading range by the pivot highs (resistance) and pivot lows (support). Trend lines are drawn on pivots to give a visual picture of price action. A new high in the price above the horizontal channel is a technical buy signal. A new low in price below the horizontal channel (or rectangle pattern) is a technical sell signal.

The horizontal channel is a familiar chart pattern. It’s found on every time frame. Buying and selling forces are similar in a horizontal channel and only the breakout of one of the two bands will show an advantage to one of them. The horizontal channel is a powerful yet often overlooked chart pattern. It combines several forms of technical analysis to provide traders with precise points for entering and exiting trades, as well as controlling risk.

A channel consists of at least four contact points. This is because we need at least two lows to connect to each other, and two highs to connect to each other. 

How to Locate Horizontal Channels

  1. Manually look through charts to locate channel patterns.

  2. Utilize software or a service that automatically recognizes channel patterns.

  3. Subscribe to a company that provides you with a list of equities to which this technique can be applied

There three types of channels. Channels that are angled up are called ascending channels. Channels that are angled down are called descending channels. Ascending and descending channels are also called trend channels, because the price is moving more dominantly in one direction.

Buying or Shorting a Horizontal Channel

Channels provide a clear and systematic way to trade by providing buy and sell points. Here are the trading rules for entering long or short positions.

  • When the price hits the top of the channel, sell your existing long position and/or take a short position.
  • When the price is in the middle of the channel, do nothing if you have no trades, or hold onto your current trades.
  • When the price hits the bottom of the channel, cover your existing short position and/or take a long position.

 

 

RELATED TERMS
  1. Channel

    A channel may refer to a distribution system for businesses or ...
  2. Trading Channel

    A trading channel is a channel drawn on a security price series ...
  3. Price Channel

    A price channel is used in technical analysis to chart the price ...
  4. Buy Weakness

    Buy weakness is a proactive trading strategy in which a trader ...
  5. Ascending Channel

    An ascending channel is the price action contained between upward ...
  6. Distribution Channel

    A distribution channel is a chain of businesses or intermediaries ...
Related Articles
  1. Trading

    Buy These Stocks on The Pullback (LEN, FNF)

    These four stocks are in upward sloping trend channels and have recently pulled back toward the bottom of the channel, providing a buying opportunity.
  2. Trading

    Enterprise Products Bouncing Up and Down (EPD)

    EPD is making some very predictable moves momentum traders can profit from.
  3. Trading

    Trend Channel Buying Opportunity in These Stocks (ABBV, RTN)

    These stocks are rising within trend channels and flashing a buy signal with the price near channel support.
  4. Trading

    Rising Trend Channel Buying Opportunities

    These two stocks are in long-term rising price channels. Currently trading near support, an upside move indicates another wave higher.
  5. Trading

    Rising Trend Channel Breakouts - Acceleration Or Top?

    These stocks have been within rising trend channels, but recently have broken the trend channel to the upside. Such a breakout usually signals two potential outcomes: an acceleration of the trend ...
  6. Trading

    Commodity Stocks With Buy Signals

    These commodity-related stocks are in uptrends and currently near support, providing a buying opportunity.
  7. Trading

    Commodity Stocks Still Presenting Buying Signals

    A handful of commodity stocks continue to offer short-term trading opportunities as they move higher within a trend channel.
  8. Trading

    Trend Channel Stocks Near the Buy Point (WCN, MWA)

    These stocks are currently trading near the bottom of trend channels but moving higher, presenting a buying opportunity.
  9. Trading

    Gold, Silver and Oil Heading Into Resistance

    Gold, silver and oil have bounced recently, but technicals indicate that prices could head lower again.
  10. Trading

    Uptrending Stocks Near Technical Buy Points

    Aflac and Humana are in uptrends but have pulled back to support, providing a potential buying opportunity.
RELATED FAQS
  1. What are some ways to make a distribution channel more efficient?

    Understand what a distribution channel is and how companies use them to move product. Learn how to make a distribution channel ... Read Answer >>
  2. What are the differences between patterns and trends?

    Learn the difference between a pattern and a trend. Explore how technical analysts use patterns and trends to identify trading ... Read Answer >>
  3. What are the top technical indicators used for range-bound trading strategies?

    Learn how to identify when a market is range-bound and what some of the technical indicators are that work best for trading ... Read Answer >>
  4. How do I effectively create a Range-Bound trading strategy?

    Understand the basics of trading range-bound securities, including how to profit from the relative predictability of the ... Read Answer >>
  5. How do traders implement the Buy a Bounce Strategy?

    Learn how traders execute the buy a bounce strategy for a security that has reached an important support level. Find out ... Read Answer >>
Trading Center