Used by traders for technical analysis-based trading, a price channel is a continuation pattern in which the price bounces between resistance and support. The resistance and support lines can run horizontal, downwards (bearish), or upwards (bullish).
The first line drawn in a price channel chart is called the main trend line. To draw this line, there need be two lows, in case of a bullish price channel, and two highs, in case of a beer price channel. The second line drawn in the chart pattern is called the channel line. Drawn in parallel to the main trendline, the channel line requires highs or lows, the quantity of which depends on the analyst – some use two points while others use only one.
In case of a bearish price channel, the trend remains bearish if the price decreases while remaining within the lines. Indications of a change in trend include price not meeting the support level. If the price follows the first indication with a move above the resistance, then this is another signal of change. And, if the price brakes support, then traders can expect a quick decline in price.
The bullish channel is the opposite of the bearish channel. The trend may change if the price does not reach resistance and breaks below the support. Similarly, a break above the resistance is considered bullish. Price channel analysis is a flexible approach to trading as placement of the two trend lines is up to the trader – they may prefer precise price and line connections or tolerate a margin.