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Channels are just another tool in technical analysis which can be useful to determine good places to buy or sell. Lines of the channels are potential supports and resistance. There are three type of channel: ascending channel, descending channel and horizontal channel.
To create an up (ascending) channel, simply draw a parallel line at the same angle as an uptrend line and then move that line to position where it touches the most recent peak. This should be done at the same time you create the trend line.
To create a down (descending) channel, simple draw a parallel line at the same angle as the downtrend line and then move that line to a position where it touches the most recent valley. This should be done at the same time you create the trend line.
When market is in side trend (forming a ranging channel), the price hasn’t got in certain destinations uptrend or downtrend, price is hesitating(see also what is a Japanese candlestick). In this case we haven’t got any dominate group (buyers or sellers). Neither the buyers, nor the sellers can take dominance.
As a rule the longer the market is ranging matter, the more stronger will be the next trend movement.
Again the more often price tests a level of resistance or support without breaking it, the stronger the area of resistance or support is.
Here is an examples of the three channel types:
