Trading Techniques  |  APR 1999

The Channel Breakout System by Mark Vakkur, M.D.

The Channel Breakout System by Mark Vakkur, M.D. This is one of the simplest and oldest trading techniques, where trades are initiated based on price exceeding a given historical level. Here’s how the channel breakout system works using the Value Line index, IBM, and the Fidelity Southeast Asia Fund. With the proliferation of affordable and powerful system-testing software, it is tempting to create and optimize increasingly complex systems with multiple rules, exceptions, and corollaries. Often, however, less is more. One of the simplest technical analysis systems is also one of the most robust and effective: The channel breakout system simply and elegantly forces the market participant to keep in sync with the major trend. Let’s explore the classic channel breakout system, a system that does not even require a computer to use. TO START WITH Most technical analysis systems can be divided into trend-following and oscillating. Some of the oldest and best systems, from point & figure charting to simple moving average systems, are nothing more than an objective attempt to identify and follow a trend until it changes. If the markets had no noise, there would be no need for technical analysis, no need to identify the most significant underlying market action. Consider point & figure charting, which filters out all price movements below a certain threshold, such as a three-box reversal. The resulting xs and os reveal patterns that might otherwise escape the naked eye when viewing a standard bar chart and screen out others that might mislead you into a premature trade.

by Mark Vakkur, M.D.