What is channeling?
Channel trading enables traders to track and speculate a market trend and is prevalent among futures traders. In this context, channel trading is used to support upward and resist downward price movement. Traders enter into long or short positions at essential areas of support or resistance.
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How do traders use channeling?
Areas of support and resistance are represented with the upper and lower limits of daily price channels. In this example, the green line is the upper limit, and the bottom red line represents the lower limit.
Traders use channels to asses whether to buy or sell. A channel is also useful for determining the volatility of the market. In our example, a taller vertical separation between the green and red line means higher volatility.
What is channeling?
Channel trading is based on the assumption that an asset price will fall when it reaches resistance at the top, or rise when it finds support at the bottom. Investors would generally open a long position when an asset's price finds support along with the bottom when channel trading. The opposite is also true. Channel investors would open a short position when the price finds resistance at the top.
