Channel lineDrawing two lines upon a chart across past highs and lows can help you decide your next trade. This is another idea that develops out of the trendline concept and is referred to as the channel line, sometimes called the return line. Sometimes you’ll notice that prices keep between two parallel lines, the trendline and another line on the other side of the price action, which is called the channel line. You’re most likely to see this in a stable uptrend or downtrend. All you have to do is draw your trend line, then draw a second line parallel to it, from the first high point (for an uptrend) or low point for a downtrend. Here’s how it looks on an uptrend-

The dotted line above the price is the channel line, and the price action happens between the two lines, fluctuating up and down. Whenever the price reaches up to the channel line, it acts as resistance and bounces the price back down to the trendline, or support.

Again, you draw the trend line first, this time joining the peaks, and then the channel line is drawn parallel to it.

Channel trading is simply an extension of trading with the trend and it is easy to see how this extra line can help you with your trading. Markets are prone to swinging in similar up and down ranges so using channels can help calculate how far away a market could offshoot from a trend. This is particularly useful in spread betting since most traders are looking to run positions for a few days or longer to take advantage of a trend.