Trendlines and channels are tools used in technical analysis to understand and predict the price movements of financial assets, such as stocks, currencies, or cryptocurrencies.

Trendlines are straight lines that connect two or more significant highs or lows on a price chart, showing the direction and strength of a trend, indicating the range of fluctuations and possible reversal points. The trendline determine the current direction of price movement as they act like a dynamic area of support or resistance. Be sure to take note of the key words in this definition.

A trend channel forms when the price bounces off a rising trendline at least three times or more. It’s worth noting that traders use daily trendline charts to time their entry and exits, while weekly charts guide their trading direction.

Channels are price ranges that an investment trades within and over a period of time. A channel is a parallel pair enclosing a sustained price move, the space between the parallel line is the channel. Users of price charts may find the tops and bottoms of a channel to be important price levels.

We have 3 types of trend channels, which are the:

Ascending channel

It can also be called an uptrend, signifying that the bulls are in control of the price.

This is so because it connects at least two major lows of the price movement to keep up while the third low makes it a valid trend. An uptrend has two categories which are the higher highs or higher peaks and the higher lows or higher troughs.

Descending channel

It’s known as a downtrend because it connects two or more major price highs, causing the price to slide down. A downtrend also has two categories; lower highs or lower peaks and the lower lows or lower troughs. It Indicates that the  bears are in control.

Horizontal channel

Also known as side trend or ranging trend. Its purpose is to identify support and resistance.

There are three factors that makes a trendline relevant, these factors are:

The length of the peak or trough

The tips of the points you would be connecting would have to either be a perfect slope or a perfect horizon. Know that if you are drawing a trendline using candlesticks, you can not mix-connect (i.e. connect wicks only or body only).The number of retest: If a trendline has had more than two connecting points, then the validity and relevance of that connection increases.

The ascending or descending slope

Short lateral movements can easily break steep trends, making them difficult to maintain. A steep trendline is the result of an accelerated increase or decrease in the short term.

Key Points

1. The market is your guide.
2. A line that doesn’t fit is unlikely to be valid.
3. Only need to join two peaks or troughs to construct, Need a third to confirm.
4. The more times the retest (holds) the stronger the trendline. 
5. In technical analysis, analysts use trendlines and channels as tools to help predict price movements.