Channel Definition

Channel Definition - A Channel is a straight line drawn parallel to the basic trendline. In an uptrend, the channel line slants up to the right and is drawn above rally peaks. Conversely, in a downtrend, the channel line is drawn below price bottoms and slants down to the right. Resistance is interpreted to be around rising channel lines and support around descending channel lines. A break above or below the channel signals a possible change of a trend. Forex traders know that one of the best currency trading strategies that can produce a high risk/reward ratio is the breakout strategy. The breakout occurs when the market suddenly bursts in a particular direction after a period of consolidation. The burst will usually give you an opportunity for a decent profit in either direction, and the loss will usually be much smaller compared to the profit it can produce.