The proper way to draw a channel...

Discussion in 'Technical Analysis' started by konviction, Feb 28, 2010.

  1. I have no problem finding a channel, however I do get a little baffled as to where I should connect the lines..do I connect the highs, or the lows..

    Here is an example of WAT on a weekly showing both channels of where I connected two highs, and where I connected two lows, for the same trend...

    which one is "right"

    thanks

    kon
     
  2. The trend line you plotted connecting the highs is correct, even though some people will prefer to connect closing prices. The parallel line (return line) should be connected to the low of the bar which looks to be the 2nd or 3rd week of 2008 at around $54.
     
  3. lows
     
  4. ehorn

    ehorn

    I have attached a view of the chart and drawn Trend lines using price and volume. I have removed the price GAP in an effort to better demonstrate the trends which I observe here.

    regards,
     
    • wat.jpg
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  5. how to i remove gaps?
     
  6. ehorn

    ehorn

    Some charting tools offer this feature, either built-in or through custom programming.

    I am unfamiliar with eSignal charting capabilities.
     
  7. If a gap on the chart is due to a stock split or the like it can be removed by the software adjusting the price.. However as there is nothing noted on the chart you show to indicate this, I can only guess that the gap was caused by a natural change in supply and demand. Therefore it should not be removed.
     
  8. The best way to draw a channel is to draw it in such a way that it fits your view on the market. That way, you can share your chart with people as evidence that what you're thinking is going to happen.
     
  9. So in a down trend i connect highs, and in a up trend i connect the lows? Why is this the correct way? Can you elaborate more please if you can.

    ---

    If this is the case, then the green channel is correct. I was connecting the low prices, where as with the blue channel is "incorrect".
     
  10. Because an uptrend is made by higher lows (reactions/corrections) and a downtrend by lower highs. The trendline defines the trend at those points.

    Yes, the green one is ok, but not so for the blue.
     
    #10     Mar 22, 2010