Forex Channel - Trading Channels

Forex channel is one of key notions of technical analysis. It is defined as a sustainable corridor of price fluctuations with a roughly constant width.

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What is Trading Channel

Trading channel is a key method used by traders to create buy and sell signals from technical charts. Trading channel provides the most important strategy that a trader can use for long time analysis and trading decisions. Usually there are two wide types of trading channels that traders will use: trend channels and envelope channels.

Formation of Trading Channel

Visually the Forex channel is described by two parallel trendlines, a support below connecting important lows and a resistance above connecting important highs.

In an uptrend the trendlines have positive slope.
In a downward trend the trendlines have negative slope.

Trading Channels Interpretation

Positively sloping channel suggests that forces of demand are permanently greater than forces of supply. However a break below the lower trendline (plus certain deviation is widely common) may be a sign of the channel’s break and be considered a sell signal.
Negatively sloping channel suggests that supply is permanently overwhelming demand. However a break above the upper trendline (plus certain deviation is widely common) may be a sign of the channel’s break and be considered a buy signal.
Until the channel is broken the trendlines are believed to keep prices inside the channel acting as support and resistance lines.