Dollar Index CMP is 81 Expected to test 85

Channels

If we take this trend line theory one step further and draw a parallel line at the same angle of the uptrend or downtrend, we will have created a channel. No, we're not talking about ESPN, ABC, or Cartoon Network.

Still, this doesn't mean that you should walk away like it's a commercial break- channels can be just as exciting to watch as America's Next Top Model or Entourage!

Channels are just another tool in technical analysis which can be used to determine good places to buy or sell. Both the tops and bottoms of channels represent potential areas of support or resistance.

Types of channels

There are three types of channels:

1 : Ascending channel (higher highs and higher lows)

2 : Descending channel (lower highers and lower lows)

3 : Horizontal channel (ranging)

Important things to remember about trend lines:

When constructing a channel, both trend lines must be parallel to each other.

Generally, the bottom of channel is considered a buy zone while the top of channel is considered a sell zone.

Like in drawing trend lines, DO NOT EVER force the price to the channels that you draw! A channel boundary that is sloping at one angle while the corresponding channel boundary is sloping at another is not correct and could lead to bad trades.