how a horizontal channel works
a horizontal channel or sideways trend has the appearance of a rectangle pattern it consists of at least four contact points this is because it needs at least two lows to connect as well as two highs buying and selling pressure is equal and the prevailing direction of price action is sideways horizontal channels form in periods of price consolidation price is framed out in a trading range by the pivot highs resistance and pivot lows support trend lines are drawn on pivots to give a visual picture of price action a new high in the price above the horizontal channel is a technical buy signal a new low in price below the horizontal channel or rectangle pattern is a technical sell signal there are three types of channels horizontal ascending and descending channels channels that are angled up are called ascending channels channels that are angled down are called descending channels ascending and descending channels are also called trend channels because the price moves more dominantly in one direction the horizontal channel is a familiar chart pattern found in every time frame buying and selling forces are similar in a horizontal channel until a breakout or breakdown occurs this type of channel combines several forms of technical analysis to provide traders with precise points for entering and exiting trades as well as controlling risk to identify horizontal channels trading a horizontal channelhorizontal channels provide a clear and systematic way to trade by providing buy and sell points here are the trading rules for entering long or short positions horizontal channel exampleelevate credit inc elvt shares traded within a horizontal channel since gapping lower on oct 30 2018 over this period traders had the opportunity to short sell the stock at the channel s upper resistance line three times red arrows conversely traders had the chance to buy the stock at the channel s lower support line on three occasions green arrows stop loss orders would sit just above the channel s upper resistance line for short positions and just beneath the lower support line for long positions while profits would be taken at the opposite side of the channel image by sabrina jiang investopedia 2021