Monday, October 15, 2012

Channel Theory V - 1st Channel breakouts usually fail

Channels with small trend bodies such as b21-25 obviously constitute a larger trend bar in a higher timeframe and you can often buy above any small bar with a strong close with a stop below that bar. Such channels are called Trend channels (TC) and often are the easiest to trade. In particular, a small trend bar with a strong close that touches a trendline or a micro-trendline is likely to give a large trend bar after it and makes an excellent swing entry (b34).

On the other hand, bars with tails on both ends such as b2-5 and b45-49 should be viewed as sloping barbwire or barb wire channels (BWC). These should be traded just like BW. The first break against the channel is likely to fail and can be taken for a second leg down (b60) unless its against support such as ema or close of prior day (b8).

A second attempt to break is often successful (b15) and a HL after a successful reversal (b18,b68) are often the safest entries.


  1. Hi, Cad, what's your opinion on "Bull channel=bear flag; bear channel=bull flag". any practical guide? thanks.

  2. It is only true in the sense that a bull leg is followed by a bear leg and vice-versa. In general, you cannot assume a bull setup when you see a bear channel. For example, after the channel b45-51, you would lose money if you assumed it would act like a bull flag and continue the trend. Channels can also breakout (accelerate the slope) such as the channel from b30-35 or simply continue after a pullback such as the bull ch from b1-b6.

    In Summary, channels are very complex and should never be simply treated as flags.