Chart pattern: Horizontal channel
What is a horizontal channel?
A horizontal channel is a neutral chart pattern that marks investor indecision. Buyers and sellers fight, and it is only at the exit of the horizontal channel that they agree on a direction; either there are more buyers than sellers or there are more sellers than buyers; hence the strong force of the movement at the horizontal channel’s exit.
A horizontal channel does not enable the anticipation of the next movement’s direction; investors are only secured on the horizontal channel’s exit (Bullish if an upwards exit; Bearish if a downwards exit).
However, some authors tend to favour a bullish exit if the movement preceding the appearance of the horizontal channel was bullish, or a bearish exit if the movement preceding the appearance of the horizontal channel was bearish (in short: to make the horizontal channel a continuation pattern).
A horizontal channel is formed by two parallel horizontal lines that frame the evolution of the price.
The upper line is called the "resistance line". The lower line is called the "support line".
A horizontal channel is confirmed/valid if it has good oscillation between the two parallel horizontal lines.
Each of these lines must have been touched at least twice to validate the pattern.
NB: a line is said to be "valid" if the price line touches the support or resistance at least 3 times.
This implies that the horizontal channel pattern is considered valid if the price touches the support line at least 3 times and the resistance line twice (or the support line at least twice and the resistance line 3 times).
A horizontal channel is a frequent chart pattern that can be found on all time units.
Graphical representation of a horizontal channel
Notes on horizontal channels
- The longer the horizontal channel, the stronger the exit movement will be.
- There is frequently a price pullback on the channel after exit.
- The exit often occurs at the fourth contact point on one of the horizontal channel’s lines.
For your information: A horizontal channel is a continuation chart pattern.