The power of two channels

Practical application

Once again, pay attention to the relative position of the corridors in the figure. Consider the descending portion. It is easy to see that sometimes we see all four lines the corridors, and sometimes borders merge with the inner corridor of the outer. At a time when the upper boundary of the inner corridor descending area merges with the upper limit of the external, comes the best time to go short. Prices run into a strong coastal edge and, most likely, will move to the other side.

It should be noted that the price reversal when the rollback is usually not complex shapes - prices just turn around and go with the trend. So do not delay, as soon as the border merged, there should be a short sale. If prices were higher, you can increase an existing position. Normally experienced trader always places multiple orders at different elevations, so it will not be a pyramid towards losses.

After prices pushed from the top of the outer corridor, some time we again see all four lines: the price move within the outer limits. But there comes a time when the lower boundary of the inner corridor runs into the bottom of the external border. Lines merge again, but this particular character of the movement of prices - the prices go with the trend, try river erosion. Should focus on the following point: while border merged remains stable trend. For QQQ-trust in the figure, this means that for any three days prices hit a new low - we see a strong downtrend.

Trends do not go on forever, and the chart clearly shows the lower limit of the inner detached from the outside. This is a signal to take profit. Typically, moving with the trend, the price a few times trying to overcome an obstacle, so do not be in a hurry, you can wait for a good price. Unsuccessful attempt to go further - and the price change direction again, there is a rollback. Again we see the four borders, and we can prepare for the opening of a new short position.

The proposed trading algorithm should be considered as an example. Initially the system of two corridors - it is a way of orientation on the chart, as, indeed, the entire technical analysis. Compare it with the classical method of trend-tracking - the intersection of the two moving averages (MA).

First, the proposed method is as simple and intuitive. Indeed, to determine the direction of the trend, is sufficient to estimate along the border which follows the inner corridor. If along the top of the trend goes, then along the bottom ... clear. If the borders have merged - the trend is steady and strong. As simple.

But there are obvious advantages. First, the information is different time scales on the same graph. No need for construction and transfer data. Levels are constructed automatically, quickly and without errors. Border corridors themselves can be used as stop-orders. Forgive, but this is the risk management. Indicators drawn lines described algorithm is present in most packet analysis. Usually in the title is the word Channel. But somehow, in this indicator either hard <protection> 20 periods (and it is not clear to what this figure refers), or the program allows you to build more of these indicators with different periods in the same graph. Unfortunately, these cases are, therefore, a method of constructing an indicator in MetaStock 7.0.

Formulas for MetaStock The following are the formulas for automatic support and resistance levels on the charts with the use of language MetaStock 7.0. For the construction of the proposed indicators in the technical analysis MetaStock must be selected to create a new display and copy the formula in the box Formula. The name you can think of any.

p1: = Input (, 1,100,1);

HHV (H, p1);

LLV (L, p1);

~ Footnote: * QQQ - ticker one trusts. Actually it is a portfolio of stocks of the NASDAQ 100 Trust Series I, unlisted.