Channels

Technical analysts use charts as a method for identifying trends in stock prices. By identifying a trend early, the trader can execute trading strategy that maximizing performance for that particular trend. In identifying trends the trader is looking to set both support and resistance for the stock and determine whether the stock may breakout from resistance or breakdown below support.

The difference between support and resistance is known as the channel. The channel estimates the potential path of the stock price in the future. Stock trends move in either of three directions. The rising trend is characterized by rising prices, while in a downtrend prices fall. When stock prices rise and fall between the same support and resistance price the stock is said to be trending "sideways". The visual representation of the channel will follow the direction of the trend being evaluated. Traders that channel stocks are ones that purchase stocks at support and then sell when they reach resistance.

Sideways Channel

In this channel the stock is trading sideways because its stock price stays between the same two price points over time.

Ascending and Descending Channels

An ascending channel indicates support and resistance for an uptrend. In this channel the price point for support and resistance increase with time. In a descending channel support and resistance prices decrease over time and indicate a downtrend. The analyst is using the channel to estimate support and resistance in order to make better trades.