This thread is for people who believe channels work. If you don't believe trend lines or channels work, please refrain from commenting. My goal of this thread is to see what other traders opinions on why channels and trend lines work. I can't rationally think why trend channels contain price even though I see it happen over and over again. Is it a self fulfilling prophecy, mass psychology thing, or is there a science to why it works? Any thoughts would be greatly appreciated!
They don't work or not work; they're just tools. And they can be useful if one uses them properly. Otherwise, they are more likely nonsense. The job of a trendline is to track and illustrate trend. That's all. And if drawn correctly, it does that well. If not, it's useless. And, depending on the instrument, the trend can sometimes be so steady and reliable that a channel is formed. This channel represents a diagonal trading range, with the same upper and lower limits and midpoint of a lateral trading range. As such, price will regularly revert to the mean once reaching either limit of the channel. This gives the impression that the channel lines provide support and resistance. But they don't. They merely mark the limits of the range, at which price turns and either moves toward the midpoint or toward the opposite extreme.
Although I don't disagree with your commentary, you are barely scratching the surface in the matter of channels. When combined with pitchforks it opens a new world of price action that goes far and beyond the basics of what you described above.
Here, perhaps, but I've posted hundreds of charts with channels. Anyone who's interested can look at the Straight Line thread, for example.
It is important to do more than scratch the surface. Knowing the purpose of a channel is very very important. the S and R lines are only are important as the Right Trend Line. as a person leaves the beginner world, he starts to deal with a lot of market concepts that are very very important. Market volatility is one of these very important concepts. Market volatility is defined as the vertical distance from the channel's point 2 to the right Trend Line (RTL). by combining the market volatility with the systemic operation of trends, a person moves into the intermediate knowledge and skills range of trading. The market's operating container of for the short term (as defined as a period of constant volatility) is the stepping off point for tooling up for intermediate knowledge and skill level trading. Most people fail to draw RTL's correctly as is shown in many contemporary threads based upon price analysis. RTL's's may only be drawn as beginnings of trends at the correct event. This is rarely mentioned in ET. For me, it is not a good idea the interrupt a thread to point this out. The most important event with respect to trends is the moment of their failure. This is a foundational fact since this same moment is where a new trend begins. As a consequence it is at this point (a moment and locus) where the construct for determining the short term market volatility construct begins. I believe the channel contributes greatly to the definition of the end of a trend. While the channel is a dependent variable construct, the key is to use the independent variable to select the moment of the event of the failure of the trend. A lot of people trade in markets by using their rote type learning. here Darvas was characterized as a rote type trader. whether he was or was not is not something a beginner type trade could determine, however. Those who made demands of Darvas at the American Research Council were not beginners. he complied to contribute to their knowldege and skills. darvas had a disregard for the long accepted investment practices from which people believed he emerged. H knew he didn't and they didn't know he didn't. Think of ET as a similar setting. Here no one knows the events that allow an RTL to be begun. Rote learnings are used here. By doing something enough times, most people believe they ae doing things correctly. But the facts belie their performances. Darvas made 2.000,000 million dollars in 18 months. Darvas perfected what he did. He traded by telegram mostly. Information was sketchy in those days. So now, learners have distinct advantages to NOT do rote type trading but instead to do trading based upon knowledge and skills. By looking at the system of operation of markets during the short term, anyone can take the full offer of the market all of the time. The market has constant volatility during the short term. See if you can get this concept to lodge in your mind. Also try to consider and accept that when a trend fails, another trend is beginning and so is the Right TrendLine.
in a longer term view they work and dont,and in a shorter term,they are just markers,they are also the easiest and least informative measure of real value,but since we trade in a herd behavior,they become the most used by the majority and become relevant, what percentage of the trading community knows the cumulative value of 30 stocks at different hours of the day,or year on year
I looked at your charts. What I use it for is on the daily time frame of the big moving stocks instead of the indexes. As you can see from the 2 charts I have posted...I have traded them each a couple times, that the channel works. Why does it work though? what is the logic behind them?