What is Channeling in Stock trading?
“At least two rises and two falls of the stock are considered necessary for the channel to become effective. ”
Channeling is considered to be one of the most important strategies that come to the aid of stock traders. It provides the traders with specific entry and exit points and also enables them to avail the benefits of take-profit counsel.A stock is said to have been influenced by channeling if it rises as well as falls in its value but always remains between two extremes. The upper extreme is called the ‘resistance trendline’ where as the lower limit is called the ‘support trendline’. The expanse or area between these two limits is called the ‘channel’.
At least two rises and two falls of the stock are considered necessary for the channel to become effective. The reliability of the channel is directly proportional to the number of times the stock touches the limits and rebounds. This recoil should not include penetration of the stock in the channel.
Channels can be of different types. For example a channel that makes successive highs higher and successive lows also higher is called the ‘rising channel’.
The opposite of this is the ‘falling channel’ that results in successive lower highs as well as lower lows. A ‘horizontal channel’ results in horizontal lower and higher limits.
Each type of channel has its merits and traders are free to opt for any kind of strategy based upon one of these channels. The thing to be taken care of is that you should always move in the direction of the channel.
To put it in simple terms, you should buy at lower level (Support level) and sell at the higher limit (resistance level). However don’t fall trap to theoretical channels, as a channel ought to have two well-defined highs and lows to become dependable. You need to delve into some mathematics for this purpose.
You also have to manually browse the charts or avail the pattern detection services. Such services are available online also but the manual method is considered to be more dependable.
It is simply for the reason that the inference you get is not electronically generated (based on matching of data) but the product of your intelligence. As a bonus you also are able to achieve tremendous amount of risk management by resorting to channeling in stock trades.
Author - DeeKay
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