Forex Chart Patterns Part 3: Channels and Rectangles
Forex Chart Patterns Part 3: Channels and Rectangles
Forex Chart Patterns Part 3: Channels and Rectangles
A price channel is a continuation pattern that slopes up or down and is bound by an upper and lower trend line.
The upper trend line marks resistance and the lower trend line marks support. Price channels with negative
slopes (down) are considered bearish and those with positive slopes (up) bullish. For explanatory purposes, a
“bullish price channel” will refer to a channel with positive slope and a “bearish price channel” to a
channel with negative slope.
CONTINUATION PATTERNS
2. A sideways market
can mean either
there will be a
continuation or a
reversal in the
market/Trend
HERE WE HAVE AN EXAMPLE OF A CONTINUATION IN THE BULLISH TREND
HERE WE HAVE AN EXAMPLE OF A CONTINUATION IN THE BEARISH TREND
ANOTHER EXAMPLE OF A PRICE ACTION PATTERN
1 Main Trend Line: It takes at least two points to draw the main trend line. This line sets the tone for the trend and the slope.
For a bullish price channel, the main trend line extends up and at least two reaction lows are required to draw it. For a bearish
price channel, the main trend line extends down and at least two reaction highs are required to draw it.
2 Channel Line: The line drawn parallel to the main trend line is called the channel line. Ideally, the channel line will be based
off of two reaction highs or lows. However, after the main trend line has been established, some analysts draw the parallel
channel line using only one reaction high or low. The channel line marks support in a bearish price channel and resistance in a
bullish price channel.
3 Bullish Price Channel: As long as prices advance and trade within the channel, the trend is considered bullish. The first
warning of a trend change occurs when prices fall short of channel line resistance. A subsequent break below main trend line
support would provide further indication of a trend change. A break above channel line resistance would be bullish and
indicate an acceleration of the advance.
4 Bearish Price Channel: As long as prices decline and trade within the channel, the trend is considered bearish. The first
warning of a trend change occurs when prices fail to reach channel line support. A subsequent break above main trend line
resistance would provide further indication of a trend change. A break below channel line support would be bearish and
indicate an acceleration of the decline.
On the next example in the next page we can see one big channel with many smaller
patterns inside of the channel, in trading you will find bigger patterns that have smaller
patterns forming inside of them all depending on the time frame.
SMALLER PATTERNS INSIDE OF A BIGGER PATTERN
HERES ONE LAST EXAMPLE OF SOME OF THE PATTERNS ALREADY DISCUSSED IN THIS SERIES.