Source: Penny Stocks
While Channel Trading is a little more complex than Momentum or Breakout trading, it can be a great intra-day trading strategy to deploy, especially on slow news days. So what is it?
Well, it’s a lot like the name sounds. We all know that stock prices spend all day going up and down. This ebb and flow can frequently create channels that can be ripe for day trading. As a stock charts develop over the course of the day, the can form ascending channels that can be used as support and resistance levels of upward moving price. Let’s look at an example:
As you can see above, the stock price was rather volatile all trading day long, climbing and pulling back on multiple occasions. But, the highs were higher and the lows were lower as the day continued. This led to the creations of a rather nice channel.
Drawing lines that touch as many candlesticks as possible on the upper and lower ends you will create a channel. And as the stock continues to trade, you can quickly notice when the channel is broken. Caused either by a downturn or, in some cases, an upward turn.
Entry and Exit Points
In this example, there are 3 entry and exit points that would make trading this channel worth your time. Although the channel only offers a little over 3% gains per entry/exit, repeatable and consistent profit is a sure fire way to growing your wealth.
It’s important to note that when you want to use channel trading, the more candlesticks your channel lines touch, and the longer period in which the channel is observing, the more accurate the channel is likely to be.
Like any stock trading strategy, it is important that you do your own research. Continue to educate yourself on what you think will work best with your style of trading. Some strategies are faster than others and some involve more risk. Ultimately you will need to decide which fits with how you want to trade.