Ascending & Descending Channels

Ascending and descending channels look like narrow sideways channels except they are either ascending or descending. At some time the price will break out of this channel. When it does, you want to be long if it breaks out to the top, and short if it breaks out to the bottom of the channel. Remember the two-day rule.


Just like in narrow sideways channels, wait one or two days after the breakout to make sure it’s not a false breakout. The small amount of money that you sometimes lose by waiting will be made back many times over by the amount of money you save by not jumping into trades early.



REMEMBER THIS

When I first started learning to draw trendlines, I would not draw them past the current price on the chart. I found this to be an error in judgment. You should always draw the trendline far past the current price. Notice on the previous chart, I just drew the trendline to the current daily price. On the following chart, I drew the trendline far past the current daily price.

On the first chart, it looks like we may see a breakout to the downside. If you had placed your order on the first day of the breakout (the last day on the above chart), we can see what would have happened by taking a look at the next chart.

As you can see, the price went sideways and is still in the channel as of the date of this chart. It would have been interesting to see which way it goes when it does break out of this channel.


You would place an order to go long above the breakout and an order to go short below the breakout. Your stops could be on the opposite side of the channel in this example. Depending on risk/reward you might place your stop just above the prior resistance area rather than right above the top of the channel.

/