The Basics of Channel Trading

 What is a channel?

A channel is a specific form of an obvious trend.


  • A channel is formed when the price moves in a waveform and has at least two peaks and dips (troughs) touching the resistance and supporting lines, and these two lines are about parallel.


  • A channel indicates, in the period of time, people (little guys as well as institutions) think and act alike and are not in a panicking mode (the price movement is not straight up nor straight down).


  • The longer the channel, the more touches the peaks and dips, the more reliable the channel is.

Channel trading actions.

How to make use of the channel to trade?


Earning Channel added four trading lines and two trading points to capture optimal timing for channel trading. The four lines are:

  • Channel buy/sell lines for an up-channel, and channel short/cover lines for a down-channel
  • Channel break-up line and break-down line.


A buy/cover line and a sell/short line are within the boundary of the two walls of the channel. A channel sell/short point is reached when the price touched the upper wall and bounces back to the channel sell/short line. A channel buy/cover point is when the price touched the lower wall and bounces back to the channel buy/cover line. A channel buy/short point is the optimal timing for you to build up a long/short position. A channel sell/cover point is a time for you to regulate your long/short position, and to take some profits.


The two other lines, channel breakout upward (break-up) and downward (break-down), are used mainly to guard the trading either for establishing a long position in an up-channel or a short position in a down-channel


Please notice that all four trading lines are related to the channel lines, and thus when the price touches these lines it has nothing to do with your personal cost. It has to do only with the cost of all participants that moves the price. The default values of these lines in Earning Channel are percentages of the channel width.


Channel Trading Principles:

Rule 1: A channel must have at least two peaks and two dips. Don’t act before a channel is formed. Stay on the sidelines when the trend is unclear.

Rule 2: Go away, when a channel is broken. Back to rule 1.

Rule 3: Don’t establish a position in the wrong direction. Don’t buy on the way down. Don’t short on the way up.

Rule 4-1: Within a channel, use channel buy/short points to build up a long/short position.

Rule 4-2: Within a channel, use sell/cover points to regulate a long/short position.

Rule 5: Use channel break-up (break-down) to take proper profits from a long-term up-channel (down-channel).

Rule 6: Always use channel break-down (break-up) to stop losses to protect your positions in an up-channel (down-channel).

The Earning Channel software, as well as the articles, tutorials and suggestions in the website and social media, are provided as tools and references to help users develop their own market analyses and make their own investment decisions. Users are ultimately responsible for the way in which they use this information to invest in the stock market. Nothing associated with the Earning Channel or the information presented in articles and tutorials should be interpreted as direct advice on buying or selling of securities.