Thursday, July 28, 2011

Channel after a trendline break

A channel after a trendline break (b35-48 after b32-34) is often the first leg of a new trend. If it gives a 2 legged pullback (b49-53), it should be taken for a possible second leg, which often is a much stronger move (b55-62). Regardless of the direction of the original trend, the new channel is more likely to be the determining direction of at least one more leg.

If the two legged pullback is very strong, it may break the channel trend and ultimately reverse the channel. This usually rare but does happen on occasion.

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