Classic Techniques  |  JUL 1998

Channel Analysis by Thom Hartle

Channel Analysis by Thom Hartle A market does not move in a straight line; instead, its movement travels across the chart in peaks and valleys, forming a channel in the direction of the trend. Early identification of the channels can give you important information, including that the trend has changed direction, what the profit objectives are and risk points. As computers and technical analysis software become more and more sophisticated, there is an increasing reliance by traders on using indicators for trading signals. This focus on using technical indicators for developing trading systems is a reasonable step, but along the way, a certain craft, using simple price charts to gauge what a market is doing, has been lost. But why the movement away from chart analysis? Once more, the answer centers around simplicity; traders have found that, much to their delight, indicators are easy to program, modify and design trading systems around. There is an additional appeal, because most indicators can smooth the price action and have specified range limits such as zero to 100. This feature gives the trader the sense that noise has been filtered from the markets. The apparent moment-to-moment randomness in a market is due to the market participants therein acting in the marketplace for their own diverse reasons. The result? The underlying price trends are clouded by the impact of these traders. As a result, traders have grown dependent upon indicators that filter the price action and produce reliable trading signals.

by Thom Hartle