Definition
Channel
A channel is a pair of parallel trendlines containing price between an upper resistance line and a lower support line.
When price oscillates between two parallel lines, it forms a channel — ascending, descending, or horizontal. Traders buy near the lower line and sell near the upper line within the channel, and treat a decisive break of either boundary as a signal of a new move in that direction.
Indian traders use channels on Nifty, Bank Nifty, and stocks to trade the range while it lasts and to anticipate the eventual breakout. The width of the channel also helps set targets and stops, and a breakout from a long, well-respected channel can lead to a strong directional move.
Related terms
- Bollinger BandsBollinger Bands plot a moving average with upper and lower bands set at standard deviations to show volatility and extremes.
- BreakoutA breakout is when price moves decisively beyond a defined support, resistance, or pattern boundary, often starting a new move.
- TrendlineA trendline is a straight line connecting a series of highs or lows to visualise the direction and slope of a trend.
- Support and ResistanceSupport is a price level where buying tends to halt a fall; resistance is a level where selling tends to cap a rise.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.