Smart traders know what indicator to be used in a specific asset or stock in times of market volatility. The main goal of finding the appropriate technical indicator is to identify the accurate entry and exit points of an asset. There are multiple indicators available on the trading platform that can provide technical information to let every trader take advantage of the current trend in the stock market.
Most of the technical indicators include mathematical calculations to calculate the current and previous price activity. However, some indicators can be very simple that they initially require careful plotting of trend lines to determine the support and resistance together with the price action. This is the Price Channel.
Price channel shows two lines, upper and lower lines which represent the highest price and lowest price respectively. The upper band comprises of the highest prices in a specific period while the lower band comprises of the lowest prices in a certain range of time.
Further, the upper line is considered to be the resistance and the bottom line would be the support of the stock. The formed channel, known as the price channel, indicates the trend of the stock and the entry and exit points. There could be an uptrend when the channel goes up, downtrend when the channel goes down and sideways when the stock remained modestly steady. This method can be applied to futures, stocks, mutual funds in the preferred time frame.
Guide: The following Boeing charts are taken from an hourly time frame in different dates. The first chart displays and uptrend, it is followed by a downtrend and a sideways.
It doesn’t end there.
Price channel can be more accurate through a simple formula. The upper channel line is added to the lower channel line. The sum is divided into two to get the centerline. Let’s have the calculation.
Upper Channel = 170.01
Lower Channel = 156.70
Centerline = 326.71 /2
The chart above shows a Boeing Chart for a 20-day period Price Channel. As mentioned above, the upper channel represents the 20-day high and lower channel refers to the 20-day low. When the stock goes beyond the upper channel line it indicates the start of the strength, conversely, when the stock goes below the lower channel line it is a clear sign of weakness.
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