Horizontal trend channels are chart patterns used in technical analysis. Like ascending and descending trend channels, horizontal trend channels are formed by drawing trendlines for both high and low prices on a chart. If asset prices remain reasonably constant overall for some period of time, the slope of both trendlines used in the chart will appear horizontal, and a horizontal trend channel will be formed.
Like all trend channels, a break in prices outside of either trendline represents either a buy or a sell signal to traders. If prices break above the upper resistance trendline for high prices, a buy signal is generated; if prices break below the lower support trendline, a sell signal is generated.
Many traders believe that a horizontal trend channel doesn’t represent a horizontal trend as such, but merely a temporary interruption in a prevailing trend in either direction. Alternatively, one could believe that a horizontal trend channel represents a “calm before the storm” of a major trend reversal. Because of this ambiguity, horizontal trend channels should only be used in conjunction with other technical analysis tools in order to ensure accurate market predictions.