Real World  |  APR 1996

A Trend Channel Trade by Thomas Bulkowski

A Trend Channel Trade by Thomas Bulkowski Here's a trade that combines fundamentals, trend channels, pattern recognition and volume. Selecting a stock to trade means more than just throwing darts. For my own trading, I use statistically positioned trend channels, a method that allows me to define the boundaries of a trend. When dealing with trend channels, you're faced with a declining stock that you still want to purchase. What makes you so sure that the stock will turn around and climb instead of plummeting? Here's a top-down approach to trading the trend channel, using market trend analysis as a starting point and technical analysis to determine buy and sell points, illustrating a trend channel with the resulting trade. TRENDS AND INDUSTRY SELECTION The hardest thing to do when I first started investing was to sell a security. Now, I find that both buying and selling are difficult when trading the trend channel. In buying securities in the channel, you are betting that the stock will cease its downward plummet, reverse direction and go up again. But there is no assurance that it will do so. However, the channel boundaries give the investor excellent indications of where to buy and sell: All you need to do is to pull the trigger. I play the trend channel by buying at the lower channel boundary and selling at the higher boundary, on one cross of the channel. Simple.

by Thomas Bulkowski