DaytradeTeam Profitzzz

Trend Channels can be very helpful in determining your entry or exit price for a stock trade. While regular trendlines show you the direction that the stock is moving, trend channels can show you where the stock is trading right now in comparison to the overall trend. Here is an example from a chart of TLAB:

The lower line is what many would consider the "normal" trend line of the stock and is drawn by connecting low points of the stock. The upper line is drawn by connecting the high points of the stock during the recent move. The result is a "channel" that the stock has been trading in, sloped upwards.

The first highlighted area shows you where TLAB has reversed off of the upper resistance line of the trend channel and demonstrates how this can be a good exit price for a long position in the short run.

The second highlighted area shows you where TLAB would meet the upward trending lower support line, and would likely be a good entry for a buy swing trade.

Trading the Trend Channel

Note that it is NOT typically a good idea to go against the overall slope of the channel, so shorting TLAB at the top of the channel is not a good idea. On the other hand, buying near the lower support line of an upward trend channel IS a good strategy.

The trend channel fails when the stock penetrates one of the lines of the channel on higher than normal volume.