1st price target achieved in $EXPE channel trade . Original call made on 3/7.

A channel is formed by a trendline and another line drawn parallel to the trendline enclosing a sustained price move. The purpose of the channel is to define the volatility of the price move and establish reasonable entry and exit points.

Before a channel can be formed, the bullish or bearish trendline must be drawn. A clear uptrend line requires at least two, and preferably three or more major low points on the chart. These points do not have to fall exactly on the line. The area in between the two parallel lines is the channel.

Trading a channel:-
  • We buy as prices approach the support line (in this case the upwards trendline), and we sell as prices near the resistance line. These buy and sell zones should be approximately the bottom and top 20% of the channel. Because the channel line is used to determine price targets. you might choose to draw the broken line across point A. The use of point A creates a channel that is narrower than the one formed using the higher point B and recognizes the variability of price movement. This allows you to take profits sooner.

     

  • Also, In case of much wider price range channels, I like to draw a parallel trendline in middle of the channel, which acts as a 1st price target. This price can be used to unload half or all positions. It makes sense to protect your profits.