Trend, trend lines and channels
An uptrend leaves higher lows and higher highs, a downtrend lower lows and lower highs; the lines connecting those lows and highs draw the channel price walks in.
A trend is price moving steadily in one direction. In an uptrend every low is higher than the previous one, and every high is higher too. In a downtrend the opposite happens. When lows and highs are mixed, the market is sideways or undecided.
In the chart above you see two sloping lines above and below price. The lower line runs through the lows, the upper line through the highs. Together they draw a channel. The colour of the lines tells you the channel's direction: green rising, red falling, orange unclear or narrowing. If the lines are converging, it is a triangle or a wedge: price is squeezing into an ever narrower space.
Inside a channel, price usually bounces off the lower line and struggles at the upper line. That is why, in a rising channel, areas near the lower line are commonly used to join the trend. A close outside the channel is important news: either the trend is accelerating or it is ending.
Drawing a trend line is less objective than it seems: two people can draw different lines on the same chart. That is why our system does not draw the line by eye; it calculates it from real turning points and counts how many times it has been touched. A line drawn from two touches is a guess; as it collects three or more touches, it turns into a boundary that more people see.
The width of the channel also carries information: a narrow channel describes a calm, orderly trend, a wide channel a trend moving with sharp swings. In a wide channel the stop distance naturally grows as well.
How to read it
- Count the lows and highs first: are the last three lows rising? Are the last three highs rising? If both are, there is an uptrend.
- Check which edge of the channel you are near: price near the lower edge offers better risk for a trade in the trend's direction; near the upper edge the risk grows.
- Take a close outside the channel seriously: a close below the lower line of a rising channel is an early sign that the trend is weakening.
- Converging lines (triangles, wedges) describe a squeeze; prepare two scenarios until the breakout direction is clear.
Trap
The most common mistake is forcing the line to fit price: if you ignore a low and redraw the line to see the result you want, the line shows your expectation rather than the market. The second mistake is opening a counter-trade at every touch of the channel. In strong trends price can also break above the upper edge; a channel is a habit, not a cage.
Tip
When you tap the trend channel layer on the evidence card, the channel's state is written too: broken, being retested, or confirmed. After this lesson, read those sentences by looking at which edge of the channel price is on.
Glossary
- Uptrend
- Price advancing with higher lows and higher highs.
- Trend line
- A sloping line connecting consecutive lows (or highs).
- Channel
- The area between two parallel or roughly parallel trend lines.
- Wedge
- A narrowing structure whose two edges slope the same way but converge.
Mini quiz
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Study the trend channel in an analysis →For information only, not investment advice.