One of the most important elements of trendline resistance is channels.
Channels are two parallel lines that restrict price action. In order to draw a channel you should first draw a support or resistance line.

To draw a support or resistance line select an obvious trend and connect two hi or low points of price action. Then draw a parallel to the first line that restricts price movements. That is the channel line. When price fails to reach support or resistance and is closer to channel line then we may see acceleration of the trend. When price fails to reach channel line then the ongoing trend may be weakening. Channel breakout means that the prices retest the broken channel line. After successfully retesting of channel lines we have a price target at least equal to the channel width.

Channel lines act as resistance and support. When broken they are usually retested. This test gives us a trade entry point. If channel lines are at the same level as a Fibonacci retracement level then price reversal is imminent because Fibonacci resistance gives extra support to price action. Look at the figure below.

Look how the broken channel line is retested and then price action reverses. Watch the price target or the broken channel line equal to the width of the channel. Also notice how the channel line with added Fibonacci 50% support line restricted price action. This trade setup may be used as a trading system. Feel free to use it and see profits come. This setup is one of the favorites for professional fund managers.

This entry was posted on Wednesday, March 14th, 2007 at 8:19 am and is filed under Forex Trendline Analysis. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.