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Channel Trading: Three Patterns You Need to Watch

To many, technical analysis is useless.

But as we’ve proven countless times, such analysis is essential, especially when you’re trying to gauge the strength and weakness of momentum with support and resistance. 

One of the best indicators to understand is the channel, defined as two parallel trend lines within a tight trading range. The upper line connects the price peaks in the channel while the lower line connects the price lows. 

How to Spot Potential Breakout Opportunities

Great traders will always go where the action is. 

Volatility, momentum, new highs, and liquidity are some of the key traits they’ll look for. Other times, there’s a fundamental reason for the break, including news, or event that’ll draw even more traders in.

Just what is a breakout, though?

 

Chart Patterns: Flags and Pennants

Traders are often told to ignore technical analysis. “Technical analysis is fundamentally flawed,” says Forbes. “Technical analysis is stupid,” blared The Motley Fool.

“The poor reputation of technical analysis is well deserved. It’s their own fault really,” commented Following the Trend.

But it’s just not true. In fact, technical analysis is just as important as fundamental analysis because it helps us understand the psychology of traders driving the stock.