Channeling Stocks (or Rolling Stocks) can be a very accurate and reliable trading strategy that will provide the trader with exact entry and exit points.
When an action repeatedly rises and falls in waves between two parallel lines, it is said to be channeled or rolling. A line is drawn on the highs and one on the lows. This forms the channel. The upper line is called the resistance line and the lower line is called the support line. Some traders choose to trade within the channel and will enter or exit the trade when the price approaches the support or resistance line. Others prefer to trade breakouts, entering or exiting the trade, once it exits the channel.
One of the biggest advantages of this strategy is that it gives us precise entry and exit points. Greed and fear are a trader’s worst enemies, but emotions have no place in a system that uses strict buy and sell signals, as well as stop loss or trailing stop orders.
These are the three types of channels: the ascending channel, the descending channel and the horizontal channel. The rising channel is a rising channel that is identified by higher highs and higher lows. The descent is a descending channel that is identified by lower highs and lower lows. And, the horizontal channel (also known as the rectangular channel), is identified by horizontal highs and lows.
There are several ways to swap strings:
-Trade in the direction of the channel. Long positions can be entered in ascending channels, driving the price up until the channel’s support line is broken. Short positions can be entered in the descending channel, exiting, once the price breaks through the resistance line.
-Trade within the channel. Long positions are entered when the price bounces off the support line and sold near the resistance line. Shorts are entered when the price bounces off the resistance line and covered near the support line.
– Escapes from trade channels. This policy does not provide an exit point. Long positions are entered when the price crosses the resistance line and short positions can be entered when the price crosses the support line.
Check channels in different time periods. Many times you can predict when a channel will drop, by checking other timeframes. The channel you are currently trading in a given time frame may be a rise or fall in a longer time frame channel. Choose the appropriate timeframe for your particular type of trading: weekly or monthly charts for long-term trading, daily charts for short-term or swing trading, intra-day charts for day trading.
Channel trading is a very simple yet effective strategy that is suitable for both novice traders and professional traders. As you should with any new strategy, paper trade before adding channel trading to your trading toolbox.