- When you learn a musical instrument you learn the five-line staff.
- When you learn to invest in stock, the six-line staff can help you sync with the market pulse.
- The six-line staffs transform signaling-guidelines into actions with optimal timing.
- Act when there are rhythms that you like. Walk away when there is no melody. You can seek for other targets with the melody you like, or rest and wait for the major market to sing.
- The six-line-staff are the six lines that turn channel trading principles into implementable mechanisms.
It is not necessary for everyone who learns five-line-staff to become a virtuoso. It also requires remarkable ingenuity to be able to compose beautiful notes that can last for over a century.
For stock, the musical notes are written every day. We, ordinary investors, are not the virtuosos nor the masters. Our job is to be able to appreciate the music and to follow its tempo to take proper actions.
So, you learned to read the stock market’s music and feel its tempo?
Many of you have not even tried to learn, we guess.
You rely on others and assume they should make money for you.
But, why should they?
Wall Street and the whole financial sector, whom do they work for? Themselves of course.
Some of you might have tried to learn or even worked hard.
But you might have learned the complicated ways and not been effective so far.
Why do we need to learn to identify the rhythm?
The rhythm gives us the feeling of the market movement. There is rhythm when the stock price moves in a harmonious way, either up, or down, or sideway. The melody becomes obvious when the price movement forms 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 nearly 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.
When a channel is formed we can capture the beats to place our trades, at the turning or breaking points of the channel.
We avoid those sounds noisy, those whose price movements are
- Straight up or straight down.
Michael Sincere, the author of “All about Market Indicators” interviewed many of the creators of the technical indicators, such as Moving Average, MACD, RSI, and stochastics. In the book, Mr. Sincere and the creators kept reminding us:
“Note: These are not actionable trades, but only guidelines. Always use other indicators to confirm before buying or selling.” He repeated this in page 63,70,90,94.
We agree with the significance, so we repeat the above statement also.
However, in Earning Channel, we are able to transform the “guidelines” into trading “actions”, by using six channel trading lines. When prices reach these 6 lines in certain ways, proper actions could be taken. The theory behinds the usage of the channel trading lines is straightforward.
First, let’s study the setting and the meanings of two boundary lines. They are the upper and lower walls of a channel or the resistance and support lines of price movement.
In Earning Channel, either use system default or human eye adjustment, we try to find the longest channel that can better represent the trend of the price movement. In doing so, we filter out several of the overshoots and undershoots, especially the short-term panic.
When a proper boundary is chosen, it overcomes three of the major deficiencies of conventional technical analysis.
- One is the inclusion of the overshoots and undershoots in the calculation of technical indicators, which generates noises frequently.
- The second is the smoothing techniques often required to smooth the noises, which results in the delay of the signal.
- The third is the necessity to fine-tune the parameters, as suggested by many experts. From our point of view, fine-tuning indicators’ parameters is equivalent to trying to guess the wavelength and amplitude, and trying to enforce the wave into uniformity.
Second, the four channel trading lines and two channel trade points.
The four lines are the buy/sell (cover/short) lines, and the break-up and break-down line. These four lines keep us away from the common pitfalls caused by ignorance or by greed and fear. The trade points keep us from buying or selling too early.
The following are the principles to follow in channel trading.
- Up-channels or down-channels give you clear directions. Don’t buy on the way down, don’t short on the way up.
- Long-term wide-and-flat channels or slightly up channels often offer good dividends.
- Go away when there is no channel. Look for alternatives.
- Act when there is a channel with at least two peaks and two dips.
- A channel-buy-point is when, in an up-channel, the price moved down the channel-buy-line, touched the lower wall, and bounces back to the channel-buy-line.
- A channel-sell-point is when, in an up channel, the prices moved up the channel-sell-line, touched the upper wall, and bounces back to the channel-sell-line.
- A channel-short-point is when, in a down channel, the prices moved up the channel-short-line, touched the upper wall, and bounces back to the channel-short-line.
- A channel-cover-point is when, in a down-channel, the price moved down the channel-cover-line, touched the lower wall, and bounces back to the channel-cover-line.
- The channel break-up and break-down are used to safeguard the channel.
When they are reached a channel is either broken or soon to be broken.
The usages of channel break-up and break-down are critical in identifying the tops and bottoms of the price movement. If you can identify tops and bottoms, and act according to Earning Channel’s guidance, you would be a winner.
Please refer to
“Topping Patterns and Channel Trading”
“Bottom Patterns and Channel Trading”
When a monthly channel has been running up for a long time, the channel break-up line is used for profit taking. This is often the case when the institutions or big players try to sell at a higher price and lure untrained ordinary investors to chase after the stock. Often times, they will use analysts to paint rosy pictures for general public.
On the other hand, when an up-channel is newly formed, the channel break-up line can be used to speed up your holding, if you haven’t filled up the position you plan to hold. This is when the big players are engulfing their lion shares.
In the early stage of an up-channel, the big players may also try to shake off the followers by causing the price to go undershoot. This is when the price touches the break-down line. It is okay to clear the long position when you have doubts on the fundamentals, but when the price is back to the original channel, you should buy back at the original channel’s channel-buy-point.
When an up-channel has run for a long time, and the price fell below the channel break-down line, it is time to clear your long position. Experienced investors may be looking for the timing to short. If you are not experienced, please practice with Earning Channel before you commit yourself to short-selling.
A similar process can be applied to the down channel for handling short positions. However, for short selling, you should be extra-careful, and prevent yourself from being short-squeezed.
Please refer to
“What to short now and how DIY?”
“How to handle short-squeeze, DIY?”
Above all, the most important thing is to practice with Earning Channel yourself. When you are familiar with the usage of the six channel trading lines, you wouldn’t have to listen to the so call professionals in the TV.
As ordinary investors, we may not be the composer of the stock music (though each of us contributes a little bit). To become profitable, we should at least have the skill of reading the stock sheet using the six-line-staff.
Hope this discussion is useful to you.
Good luck on your investment!
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