Educational Post Ascending Channel**** Educational Post:
ASCENDING CHANNEL
An ascending channel is the price action contained between upward sloping parallel lines. Higher highs and higher lows characterize this price pattern. Technical analysts construct an ascending channel by drawing a lower trend line that connects the swing lows, and an upper channel line that joins the swing highs.
The pattern’s opposite counterpart is the descending channel.
KEY TAKEAWAYS
1. An ascending channel is used in technical analysis to show an uptrend in a security’s price.
2. It is formed from two positive sloping trend lines drawn above and below a price series depicting resistance and support levels, respectively.
3. Channels are used commonly in technical analysis to confirm trends and identify breakouts and reversals.
****Trading the Ascending Channel
1. Support and Resistance:
Traders could open a long position when a stock's price reaches the ascending channel’s lower trend line and exit the trade when the price nears the upper channel line. A stop-loss order should be placed slightly below the lower trend line to prevent losses if the security’s price abruptly reverses.
2. Breakouts:
Traders could buy a stock when its price breaks above the upper channel line of an ascending channel.
3. Breakdowns:
Before traders take a short position when price breaks below the lower channel line of an ascending channel, they should look for other signs that show weakness in the pattern.
