Horizontal channels are trend lines or chart pattern used in technical analysis that join variable lows and highs to show the price confined between lower line of support and upper line of resistance. Horizontal trend channel is also known as sideways trend or price range. Horizontal trend channel provide traders an exact point entering and existing trades.
Horizontal trend channel has rectangle pattern appearance that contain at least four contact points, because it need two highs to connect and two lower to connect. The buying and selling forces are equivalent and main trend of price action is sideways. Horizontal trend channel is usually formed in time of price consolidation. Trend lines in ascending and descending orders are drawn to take a graphic picture of price action.
The new high above the horizontal trend channel is technical signal to buy a currency while new low price action below the horizontal is an indication of sell. Horizontal trend channel is usually formed all time charts. The buying and selling forces remains same until breakout or breakdown occur.
Horizontal trend channel provide precise information and point for entering and exiting trade. Here are some rule that you need to follow if you find horizontal trend channel in any time frame of specific currency.
- When price of the currency hit top of the channel, take a short position.
- When price is in middle range of the channel, do nothing, wait for the price to hit top or bottom of the channel.
- When price of currency or security hit bottom of the channel, take profit from your short position and it’s time to go for long position.