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Glossary · Chart and price

Channel

Two parallel lines enclosing price as it trends or ranges: one drawn through the lows and one through the highs.

By Sky Trade editorial teamUpdated

A channel frames price between two parallel boundaries. In an ascending channel both lines slope up; in a descending one both slope down; a horizontal channel is simply a range. You build one by drawing a trend line through the swing lows (or highs) and a parallel copy through the opposite swings.

Channels give two kinds of information. The slope shows direction and pace. The width shows the typical swing size, which is useful when you think about expiry: if price usually needs 20 minutes to travel from one side of the channel to the other, a 2-minute trade at the lower edge is mostly a bet on the bounce itself.

Where traders go wrong:

  • Treating the edges as exact. They are zones, and price often overshoots or falls short.
  • Fighting the slope. In an ascending channel, Lower trades from the top edge go against the trend.
  • Clinging to a channel after it breaks; a decisive close outside is information, not an anomaly to ignore.

See trend lines and channels for drawing and reading channels step by step.

Example

EUR/JPY climbs inside a channel about 30 pips wide, lower line at 163.20 and upper at 163.50. A touch of 163.22 with a bullish candle is a with-trend setup; a close at 163.05 breaks the channel.

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