Technical Indicator MEGA Reference Part 45 – Price Channel

Price Channels

Price Channels suggest possible buy and sell signals based on price breakouts.

  • Upper Price Channel: The highest high over a user-defined time period.
  • Lower Price Channel: The lowest low over a user-defined time period.

The user-defined time period is generally 20 periods. To further illustrate how a price channel is created a chart of the Nasdaq 100 ETF (QQQQ) is shown below:

Price Channels are used mainly to identify price breakouts. The possible buy and sell signals are shown below in the chart of the QQQQ’s:

Price Channel Potential Buy Signal

A trader might buy when price closes above upper bands. This is similar to a trader buying a breakout above resistance, where the resistance just happens to be whatever the highest high was of the past 20 trading days.

Price Channel Potential Sell Signal

A trader might sell when price closes below lower bands. This would be like selling a breakout below support, but the support in this case is whatever the lowest low was of the previous 20 trading days.

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