Trend channels are very useful tools in the Forex world as correct analysis can help you in correctly determining where your entry point or exit point of a trade should be.
Although regular trend lines are able to demonstrate the direction that the price is moving, trend channels allow you to clearly see where the currency is trading at that particular point in time in comparison to the overall trend and direction.
If you were to look at a graph or histogram of the trend lines and draw a line along both the top of the trend line, across any accumulated highs, and another line at the bottom of the trend line, laying directly below the low points then the area in between these two lines, represented by both the historical highs and lows would be considered the trend channel.
Generally, the channel will be shown to be sloped slightly upwards. If you were in position at the top of the trend channel trading off of the upper resistance line, then given the nature of the channel it is likely that a down trend is imminent, making this a good place for an exit price. If however you are positioned on the upward trending lower support line then given the direction of the trend channel this would be considered a good entry point.« Back to Forexpedia Index