“The trend is your friend” is a quote used often by traders and the theory behind it is simple; it’s perceived as easy to make money trading in the same direction as the trend.
An uptrend line (successive higher highs and higher lows) is depicted as a line drawn along the bottom of easily identifiable support areas.
In a downtrend (successive lower highs and lower lows), the trend line is drawn along the top of easily identifiable resistance areas.
Channels can be seen as adding a dimension to the trend line theory we referred to earlier
A channel is created simply by drawing a parallel line at the same angle of the uptrend or downtrend to create a channel.
- To create an uptrend channel, draw a parallel line at the same angle as an uptrend line and then move that line to position where it touches the most recent high
- To create a downtrend channel, draw a parallel line at the same angle as the downtrend line and then move that line to a position where it touches the most recent low.
[This should be done at the same time you created the trend line]
When prices hit the bottom trend line this may be used as a buying area
When prices hit the upper trend line this may be used as a selling area