Important things to remember about drawing trend channels:

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An ascending channel is the price action contained between upward sloping parallel lines.

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Higher highs and higher lows characterize this price pattern. Technical analysts construct an ascending channel by drawing a lower trend line that connects the swing lows, and an upper channel line that joins the swing highs. It is formed from two positive sloping trend lines drawn above and below a price series depicting resistance and support levels, respectively.

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Channels are used commonly in technical analysis to confirm trends and identify breakouts and reversals. A breakout above an ascending channel can signal a continuation of the move higher, while a breakdown below an ascending channel can indicate a possible trend change. Breakouts: Traders could buy a stock when its price breaks above the upper channel line of an ascending channel.

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It is prudent to use other technical indicators to confirm the breakout. For example, traders could require that a significant increase in volume accompanies the breakout and that there is no overhead resistance on higher time frame lines levels trends channels. Breakdowns: Before traders take a short position when price breaks below the lower channel line of an ascending channel, they should look for other signs that show weakness in the pattern.

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Price failing to reach the upper trend line frequently is one such warning sign. Traders should also look for negative divergence between a popular indicator, such as the relative strength index RSIand price.

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Trend lines can be based on moving averages or highs and lows over specified intervals. Envelope channels can use similar trading strategies to both descending and ascending channels. Compare Accounts.

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