What is a horizontal channel?
The horizontal channel is a trendline connecting pivot highs and lows, indicating the price between resistance and support lines. Horizontal channels are sometimes known as price ranges or sideways trends.
How Horizontal Channels Work
A horizontal channel, or sideways trend, resembles a rectangular pattern. It has at least four contact points. It requires two lows and two highs to connect. The price is moving sideways with equal buying and selling pressure. Price consolidation creates horizontal channels.
Price ranges are defined by pivot highs (resistance) and pivot lows (support). Draw trend lines on pivots to visualize price activity. Technical buy signals occur when prices rise above the horizontal channel. Technical sell signals occur when prices fall below the horizontal channel (or rectangle pattern).
Horizontal, rising, and descending channels exist. Angled channels are known as ascending channels. Angled channels are known as falling channels. Ascending and falling channels are trend channels because prices strongly move in one direction.
Every period has a horizontal channel chart pattern. Buying and selling pressures in a horizontal channel are comparable until a breakout or breakdown. This channel blends technical analysis to help traders rapidly manage risk and initiate and exit trades.
Chart patterns like horizontal channels are strong yet frequently missed.
To find horizontal channels:
- Manually search charts for channel patterns.
- Use stock screeners like Finviz.com or a service that detects channel patterns.
- Join a daily chart pattern service.
Trading Horizontal Channel
Buying and selling points on horizontal channels make trading obvious and methodical. Use these trading rules to enter long or short trades.
- Sell your long or short position when the price reaches the channel top.
- When the price is in the center of the channel, hold onto your transactions or do nothing.
- Cover your short position or buy an extended position when the price reaches the channel bottom.
Horizontal Channel Example
Since Oct. 30, 2018, Elevate Credit, Inc. (ELVT) shares have moved in a horizontal channel. The traders might short-sell the stock three times at the channel’s upper resistance line.
Traders might purchase the stock three times at the channel’s lower support line (green arrows). Traders place stop-loss orders above the channel’s upper resistance line for short positions and below the lower support line for long bets. The other side of the channel takes profits.
Conclusion
- Horizontal channels are trendlines connecting pivot highs and lows.
- The price direction is sideways in a horizontal channel, and buying and selling pressures are equal.
- A horizontal channel helps traders enter and exit transactions precisely.
