Tuesday, May 24, 2011
Channels are trends
Channels are narrow trends and they should be traded just like trends. A channel after a spike often acts as a wedge consisting of three pushes. In general channels are basically trends and the momentum of the spike is what makes the channel after the spike move in three pushes and often overshoot a TCL.
Channels without a clearly defined spike should also be traded like trends. A 2 legged PB (b37-44) in a channel can be traded with trend as an A2 and a break of the channel (b39, b63) and a test of the extreme is a precondition to fade the channel. In case of channels, its counterproductive to count pushes and fade a perceived wedge (b31) simply because the entire channel acts as one push and a two or three tick push beyond the prior swing point is hardly a new push or extreme behavior.