|What It Is ?
While the trendline is the primary tool of technical analysis, the channel line is an important secondary one. Many times, I have questioned the channel lines drawn by other technical analysts -- even those whose insights I admire. Often, channel lines are inserted where I do not believe they belong. For example, a channel line sloping at one angle, while the trendline is sloping at another, is incorrect and can lead to misleading conclusions. When constructing a channel line, it should be drawn absolutely parallel to the basic trendline or at minimum very close to parallel.
|Why it Matters ?
A channel line is a secondary tool to the trendline. When drawn properly, however, it can assist the trader in identifying areas of support or resistance. It can also help gauge whether when the trend is losing steam or accelerating. Construct channel lines effectively, and you will discover that they can be an important part of your technical analysis toolkit.