Channels Flashcards
Why are Channels Important?
All Markets are Always in Channels whether or not if you see them
Every market at all times is in
Many bull and bear channels on the chart in front of you
Many channels on higher & smaller TFs
In a Bull Trend which is the Channel Line and which is the Trend Line?
Trend line Below
Trend channel line above
In a Bear Trend which is the Channel Line and which is the Trend Line?
Trend line Above
Trend channel line Below
On every timeframe on every chart channels dominant the market
TRUE or FALSE?
TRUE
Every market is always in a Trend or a TR
10% of the Bars will be BO Trend Bars
The other 90% will be either a Trend or a TR
Define a Channel
Any collection of bars that can be contained between 2 lines
Lines on the chart are rarely perfect
What is an overshoot and an undershoot?
Overshoot - going beyond the line
Undershoot - not quite reaching line
*Usually do not see them until the pattern is complete
When there are 2 choices for a line, one with an undershoot and the other with an overshoot, which line should I use?
Choose the line with overshoot it usually shows the shape better and highlights the pattern better.
Traders are always looking at channels, one of the reasons is they are looking for transitions.
What does a channel eventually evolve into?
a TR, the channel eventually ends and evolves into a TR 75% of the time and traders need to know when it evolves into a TR because they will trade it differently in the market cycle
When a market is in a Tight Bull Channel what will traders look to do?
Traders will look to Buy
When the market breaks below a Tight Bull Channel what may it become?
It might be becoming a TR, when it evolves into a TR it can be a BULL Flag so traders may be looking to buy until the market states otherwise but because it is a TR they will also be willing to sell
What do the Channel Lines help me as the Trader to identify?
What is a Bull Channel in a Bear Trend?
it is a Bear Flag
In this Bull Channel, there is a 75% chance of a Break to the downside and then a TR/Bear trend and a 25% chance there will be a Bull BO and the cycle starts over
BO - CHANNEL - and Trading Range
In this Bull Channel, there is a 75% chance of a Break to the downside and then a TR/Bear trend and a 25% chance there will be a Bull BO and the cycle starts over
BO - CHANNEL - and Trading Range
Lines help identify changes in trend, When do the lines help to identify reversals into an opposite trend? With this Bear break below the bull channel, what is likely to follow?
When there is a break of the line signaling a potential reversal or BO
Spike and Channel
A Channel that rises is a _______ channel and a channel going down is a _______ channel?
Bull Channel Rises
Bear Channel is going down
When should I draw a line?
As soon as I see a 2nd reversal, draw a line
And use a parallel of that line to create 2nd line above/below (most times the opposing side will only have one reversal, so use this line to see how the market reacts when it gets to or near this line
Don’t see a channel… There is always a channel,
what should I do if it is not yet clear?
Know that there is a channel even if I do not yet know where the other line is, as I see more bars, draw more lines which gives me more clarity
Look what happened here in this channel
A strong BO(2nd touch) to hit the parallel trend line in this Channel and it had bad follow-through
What is likely to happen?
The market is aware of this line, a lot of computers are using this line, maybe we reverse down, maybe its resistance, maybe we break above it.
In this channel as each new bars are added I keep drawing lines, if we keep getting HLs the previous “point 2” becomes unimportant and I will draw on a new Channel Trend Line
What does each new bar added to the chart give me?
Each new bar that gets added to the chart gives me addition information and with each new piece of additional information I am re-evaluating what I am doing
And a lot of times that requires me to erase old lines and create new lines
Traders trade based on what happens when the market reaches a line
TRUE or FALSE
True
They trade based upon what happens at those lines, is the market paying attention to those lines when the market gets there does it breakthrough or does it reverse
The 2nd Line often offers several choices, what are traders most often looking for when they draw lines?
They are mostly looking for reversals, TWO REVERSALS DOWN, so you can draw a bear trend line.
- Possibility of Top of Bear Channel
- Bulls hope it becomes Bull Flag
Bear Channel is usually a Bull Flag
In this Bear Channel (Potential Bull Flag) with this Bear BO Bar and bad follow - through what is likely to occur?
With the bad follow-through after the Bear BO it is telling me that this Bear Channel is likely to be a Bear Leg in a TR or a Bull Flag
*Remember we are still above the Bottom of the Bull BO point and we are about at 50% of the Bull BO Leg so the odds of the market so the odds still favor the bulls
How should I think of Bear Channels?
Think of them as Bull Flags with a strong possibility of a Bull BO and vice versa for Bull Channels
Bulls look to Buy a Reversal up at the Bottom of this channel
What details am I to look for to Buy the Reversal up from the bottom of this channel?
Look for test of :
Top of Channel
Top of Bull leg
Leg 1 = Leg 2 MM up
Place a Buy Stop order just above the high of the High 2 Bar
If a line is too divergent will most computers ignore them or use them?
Most computers will ignore them, it is not useful support or resistance
More reliable if close to parallel or almost parallel
How many points do I need to draw a line?
I need 2 points
If they’re a lot of bars near a reversal point, traders will view it as a single line point not multiple line points
TRUE or FALSE?
TRUE
Traders will view it as a single point because there has to be good symmetry between the points, the distance between points 1 & 2 has to be similar to the distance between points 2 & 3 if not traders will ignore the line/count it differently.
Is this an important line?
No, because there is to much space between points 2 & 3(compared to 1 & 2) so computers will ignore this line and it is deemed irrelevant, no one is going to use that line to place trades.
Is using the top of a Strong Leg down great to use?
Yes because that is what computers are using, Using relevant bars to make trading decisions similar to that in which a computer is using increases my odds of making money.
Computers will ignore lines drawn using minor highs & lows
Best to draw using top of strong bear leg
Is re-drawing lines ok to do?
Yes because a lot of BOs and Trend Reversals fail, so a line that is already drawn on may get “overshoot” but it could be a fake-out. That is why redrawing lines helps me the trader to move efficiently in the markets with these fake-outs
What do Traders like to use for lines?
Major Highs and Major Lows
Trend Line = Means Channel
Whenever I can draw a trend line does that mean the market is in a Channel?
Yes, it does mean the market is in a channel whether or not if I am aware of where the top of the channel is.
When the Trend Line is set meaning there is now a Channel should I be buying reversals up from the Channel line back into the direction of the trend?
Yes, Look to buy reversals up for a test of the top of the trend, or top of the channel and look to take profits of the reversal down from the top of the channel (if the channel is broad enough some bears will sell new highs)
Traders like to see what happens at Top of Channels (will it reverse down)and what happens at Prior Highs (will it reverse down)
TRUE or FALSE
TRUE
When the Limit Order Bears are making money Scalping at Prior Highs or Tops of Channels, what does that tell me as the trader?
That the market is to probably soon evolve into a TR
The 70% Rule
If I have a Bull Trend/Channel and I get a BO on-top of the Channel there is a 70% chance that I will get a Reversal down within 5 bars and the same if there is a BO below the bottom of the Channel there is 70% chance of a Reversal up
And I have a 30% that the Bull BO is successful and start a new market cycle [BO - CHANNEL - Trading Range]
The 70% Rule
If I have a Bull Trend/Channel and I get a BO on-top of the Channel there is a 70% chance that I will get a Reversal down within 5 bars and the same if there is a BO below the bottom of the Channel there is 70% chance of a Reversal up
And I have a 30% that the Bull BO is successful and start a new market cycle [BO - CHANNEL - Trading Range]
When should a Trader Scalp Shorts in a Bull Channel?
When there is room to make a profit, if not I should only be looking to Buy Longs in harmony with the Bull Channel
What is a good way to Buy in a Bull Channel?
Place a Buy Stop just above a High of a Bull Bar at the bottom of the channel looking a resumption/continuation of channel up
Any Pair of lines that is contained in a section of the chart is a Channel
What kind of Channel is this?
a Convergent Channel (get closer together)
It is a Triangle - 3 pushes up 3 pushes down & the lines are getting closer together
As soon as I see 2 Reversals Bars where should I draw a line?
Yes
Draw a line across the highs/lows to create a bear/bull trend line
Then draw the parallel line to create a channel line
Once a channel is created what should I do next?
Watch how the market behaves if it gets near lines
Every time I see Reversals (of at least 2 points) what should I do?
Draw a new line as it is updated information and it helps me as the trader to determine what may happen next to the right on the chart
If the market is creating HLs and LHs what are we in and what mode is the market in?
We in a Triangle (Type of TR) and we are in BO mode. The market is in a Bull & Bear Trend at the same time, this is very common in the markets
How long should I leave the drawn on lines on the chart?
Until it is clear what the market is doing than I can delete the useless lines (Pink line removed)
Whenever I have big bear BOs with weak follow-through bars what is likely to happen?
I will probably soon get a reversal up in what is soon to become a TR and because of this weak follow-through Bulls start to think there will be a Bull BO above the channel and they will begin to buy reversals up
When Bulls are able to consistently make money buying new lows in a Bear Trend what is that trend probably soon to evolve into?
It is probably soon to evolve into a TR
Weak Rally in the Bull Leg and we had 3 pushes up to previous high and a good Bear bar at the high, what should the Long Bulls start doing?
Start taking partial or full profits on the reversal down
What should I the trader be looking for at the lines?
Watch for BOs or Reversals
Are the computers paying attention to the Upper Blue line and Pink line right now?
No! Therefore get rid of it. The line remaining initially seemed to be unimportant butt we are getting close to it so the market may see this as the top of the channel
Anytime I see reversals always draw lines to see how the market reacts to these reversal points
TRUE or FALSE
TRUE
You want to see how the market reacts to these lines, will it ignore the line or will it reverse
Remember to try to draw the line as a parallel of the bottom channel. It is easy to forget to draw it
Remember to try to draw the line as a parallel of the bottom channel. It is easy to forget to draw it
Can a wedge Bull Flag Begin before the Bull Leg Ends?
Yes it can, 50% of wedge Bull Flags begin before bull leg ends. Often becomes Final Flag before Reversal
A Bear Trend usually transitions into a Bull Trend before the Bear Trend finishes
A Bear Trend usually transitions into a Bull Trend before the Bear Trend finishes
Can the 1st high in a Bull Trend be the last LH in a Bear Trend?
Yes, it can the 1st high in a Bull Trend is often the final LH in a Bear Trend
a Bear Trend is often a wedge Bull Flag, state some cases as to why it could be?
Bear Channel stayed above the bottom of Bull BO
Lacked consecutive big bear bars
Probably bear leg in the bull trend
*Got Bull BO and Trend Resumption
How can I validate if a line is important?
We don’t know until we get validation of the line, what will happen if the market gets up to this line. As you can see here it reversed down at the line meaning computers deem this line important
Whenever I see a Wedge Top what is more likely two legs straight down or two legs sideways too down?
Two Legs sideways to down
There is a 70% chance of a Reversal in Both Bear and Bull Channels?
TRUE or FALSE
TRUE
Where should I trade Reversals in Channels?
Trade Reversals near the Top and Bottom of the Channel. However Remember strong legs NEED strong Reversal setups and if not strong set, need either: 2nd entry Strong BO on the Reversal
After every failed BO draw a new line so that is once market breaks below the channel, redraw the line and vice versa for the upside.
The market broke strongly below the Trend line what am I to do now?
Draw a new line and get rid of the old one as the market price is telling me it is no longer needed
As trends mature and more bars are added to the Trend, what tends to typically happen?
The trend typically becomes weaker and it tends to evolve more into a TR, the Channel is becoming flatter and broader. All signs the market is transitioning into a TR
It is important to keep drawing lines and watch how the market reacts when it gets near a possible bottom. Be aware of all lines. Look for a strong Reversal up or BO to the downside
It is important to keep drawing lines and watch how the market reacts when it gets near a possible bottom. Be aware of all lines. Look for a strong Reversal up or BO to the downside
Can Channels be diagonal or sideways(horizontal)?
Yes they can as long as the price is contained between 2 parallel lines, Diagonal, like TRENDS & Horizontal like TRs
Sometimes the Channels are not all that obvious, what kind of channel is this?
Expanding Triangle Top; the lines are diverging
Sometimes the Channels are not all that obvious, what kind of channel is this?
Triangle; the lines are converging
*The market is sideways, therefore, it is in BO Mode
Channels; Wedge & Triangle
Channels; Wedge & Triangle
a Tight Bull Channel is what on a Higher TF Chart? Should I be looking to Sell or to Buy or both in a Tight Bull Channel?
a Tight Bull Channel on a smaller TF Chart is a BO on a higher TF Chart and I should only be looking to BUY in a Tight Bull Channel (Do not SELL, the market does not PB far enough to scalp)
How should I trade a Broad Bull Channel and why?
Broad Bull Channels are similar to TRs (just that is sloped) and they are weaker Trends. The can Trade in both directions. Better to trade with the Trend but when the reversals are as deep as they are on this chart Bears will sell knowing the market will fall enough for a profit
Broad Bull Channel how should I think of it?
a Weak Bull Trend it is slightly better than a TR but during a lot of the time, it is in a TR. In a Bull Broad Channel like this Bull and Bears will look to buy & sell.
When I see Bull legs that have bad follow-through what is that telling me about the market?
It is telling me that the market is either in a TR or a Broad Channel, this is why traders trade it like a TR due to the bad follow-through and deep PBs
Tight Bear Channel on 5 min is what on a Higher TF?
a Bear BO; this is why is better to only sell AIS, much easier to make money
Tight Bull Channel on 5 min is what on a Higher TF?
a Bull BO; this is why is better to only buy AIL, much easier to make money
Is this Channel Broad enough to look for scalps or should I only look to buy?
General Rule; if cannot decide, then it is too tight to sell and Only look to Buy
What type of Channels are Strong trends/ BOs on Higher TFs?
Tight Channels are strong Trends, PBs usually are only 1-3 bars; AIS
In a Broad Bear Channel does the market have deep PBS?
Yes, in a Broad Bear Channel the PBs usually last many legs, it is like a TR sloped down, Bulls can Buy for scalps and so can the Bears sell for swings/scalps
Broad Channels spend a lot of time in TRs does that permit me to trade them like TRs?
Yes, absolutely you can Trade them like TRs Both Bears and Bulls can make money in a Broad Channel
a Broad Bear Channel = a Weak Bear Trend; looks like a TR that is tilted (sloped)
a Broad Bear Channel = a Weak Bear Trend; looks like a TR that is tilted (sloped)
Is this Channel Broad enough to buy for scalps?
Hard to tell, if I cannot decide, then it is too tight to buy therefore only SELL
Most Trends Begin with what?
a BO
After the trend begins with a BO what usually follows?
Then we get a PB and a channel forms
Spike & Channel patterns are usually Nested; what does this mean?
This means that they’re usually smaller patterns within the bigger pattern
When the market is in a Channel and it has bad follow-through what must I assume?
The this Channel is going to evolve into a TR and from that TR we can either get Trend Resumption or a Reversal
How else can I think of a weak Channel?
I can also think of a channel as a Hybrid & Transition between a BO(strong trend) & TR. The Channel is usually 1st leg of TR, and therefore is part of the TR
Channels often evolve in a TR, in a Bull Channel as the Bulls become less certain what do they begin to do?
Scalp more & swing less, Begin to take profits above prior high, Losing confidence in prices going much higher, the Channel than evolves into a TR
Bull Channel transitioning into TR so what do the Bears begin to do?
Bears doubt price is going much higher so thy sell above prior high and scale in higher for scalps
Bear Channel transitioning in a TR from its Spike & Channel pattern, as the Bears become less certain what do they start to do?
as the Bears start to become less certain they scalp more and swing less, Begin to take profits below prior low, They’re losing confidence in prices going lower, The are having a starts pattern (signs that the Trend is weakening)
Bear Channel transitioning into TR so what do the Bulls begin to do?
Bulls doubt the price is going much lower so they buy below prior lows and scale in lower for scalps
What type of BOs do most Bear Channels have?
Most bear channels have bull BOs, therefore think of a Bear Channel as a BULL FLAG and the is true for Bull Channels
What type of BOs do most Bull Channels have?
Most bull channels have bear BOs, therefore think of a Bull Channel as a BEAR FLAG and the is true for Bear Channels
Bull Channels 75% of the time have what kind of BOs?
75% of the time Bull Channels have a Bear BO. This does not necessarily mean a Bear Trend but it could be a Bear break of the Bull Channel and then the market goes sideways
Market Cycle
Market Cycle
When a Bull channel has a Bear Break and the market has a bear BO that looks like a MTR pattern, what is more likey a TR or Bear Trend
The more the channel looks like a trend reversal pattern, the more likely the bear BO will lead to a Bear trend, instead of a TR
Think of Gap openings as an invisible Trend Bar
Think of Gap openings as an invisible Trend Bar
All Bear Channels have a 75% chance of a Break above what & and 25% chance of a what?
All Bear Channels have a 75% of a Bull BO above the Bear Trend line and 25% of a Break below for a Trend Resumption
When the Bear Channel is also a Wedge Bottom the market can get a Bull Trend instead of just TR
TRUE or FALSE
TRUE
Even in a Tight Bear Channel, there is a 75% chance that the market will get a Bull BO that goes either sideways or up
TRUE or FALSE
TRUE
Here we worked sideways for a few bars and then eventually worked higher then got the Bull BO above the bear TL
Do most Channel BOs usually Fail?
Yes, they do, 75% fail within 5 bars (look at the highest TF that shows the channel this is the chart that the BO reverses within 5 bars) The test of the top of channel was a successful BO due to the Buying Pressure that one bar had
Always look at the highest TF that has the channel to identify the reversal within 5 or less bars and use a lower TF for entry.
Always look at the highest TF that has the channel to identify the reversal within 5 or less bars and use a lower TF for entry.
What is the minimum goal of the reversal up/down in the channel?
Minimum goal/target is to test the opposite side of the channel
In a Bull Channel, I am expecting there will be a Bear BO 75% but when it is a Tight Bull Channel should I expect the Bear BO to Reverse the trend?
No if strong tight channel or wedge the reversal is often too small to trade profitably, it is very difficult to make money on a minor reversal, therefore it is better to only be looking to buy
What percentage of the time will you see a successful Bull BO above a Bull Channel?
Only 25% of the time, a successful bull BO above a Bull Channel occurs. Here is a Bull BO as a result of a successful Bull BO of the Bull Channel and I have to assume the market cycle is starting over
What percentage of the time will you see a successful Bear BO below a Bear Channel?
Only 25% of the time, a successful bear BO below a Bear Channel occurs. Here is a Bear BO as a result of a successful Bear BO of the Bear Channel after a test the top of the channel a reversal down followed with 3 consecutive strong Bear Bars; Bear BO probable and market cycle to restart.
Bear Channel with a Bear BO does the cycle restart or continue?
If a Bear Channel gets a new Bear BO, the cycle then begins again
In a Bull Channel even though there is only a 25% chance of a Bull BO of a Bull Channel when I begin to see 5,6,7+ Bull Bars what must I assume?
I have to assume the Bulls are in control and we are indeed in a Bull and the market cycle starts over again
State the market cycle (Example of Bull Trend)
BO - PB - Channel - Bear or Bull BO of Channel; Bear BO generally evolves into a TR & Bull BO can result in a Trend Resumption, either way after the Break of the Channel look for the cycle to start again
What is the market cycle?
- BO 2.PB 3.Channel 4.BO 5.Channel 6.TR at this TR expect the market cycle to start over again
After the BO of the channel, I should expect to evolve into what?
a TR and after 20+ Bars the market will then enter BO Mode with a 50/50 chance of a Break up/down to start the market cycle over
n Reversal setups should I enter the market with a Limit Order or a Stop Order?
Most Traders should only enter with stop orders
Who enters reversals more with limit orders, experienced traders, or novice traders?
If context is good, experienced traders will enter with limit orders & scale in betting on reversal
When a Bull Channel up is not very strong what will most traders expect with potential Bull BOs?
Most traders expect the Bull BO above wedge Top to fail, Bears will sell with Limit orders
Most Trends Bull/Bear with a Failed BO above the top of the bull channel (vice versa for Bears)
TRUE or FALSE?
TRUE, look at the follow-through bars are the Bull bars near the top of the channel, they’re SCREAMING failed BO reversal to bottom of Channel
If the context is favoring weak Bull Tops at the top of the Channel should I Buy with Limit orders at the bottom of the channel?
No, do not buy at the bottom of the channel with limit orders as 75% of Bull Channels have a Bear BO so with the weak context in the Channel for the Bulls it would not be wise to limit order buy at the bottom of the channel
What is a sign of eager Bears?
Look at the 3 consecutive Big Bear Bars in the channel, the open of the Bear bars opened below the close of the prior Bear bar creating gaps and selling pressure. Odds are the Bear BO from the Bull Channel is very likely. Only look to sell, especially if Give-up Bar is present.
Wedge Top, 3 consecutive bear bars chances are the Bull Trend Channel is ending
TRUE of FALSE?
TRUE
I should sell the Bear BO, or sell the close of big Bear Give-Up Bar, Sell PBs
Should I be selling at the bottom of this channel betting on a successful Bear BO?
No, because only 25% of the time I will get a successful Bear BO in a Bear channel and also look at the context, the Bears have no clear sign of dominating strength, it looks more like a TR so Bulls and Bears have equal strength, in this case betting on the 75% chance Bull BO of a Bear channel has more favorable odds. Therefore look to Buy with a limit/stop orders near the bottom of the channel
Most Channel BOs fail, should I be selling with a Limit order here at the top of the channel betting on a failed BO?
I would not sell this high expecting the rally to reverse again with how quickly the market went to the top of the Channel with a micro DB and big BULL Trend Bar (Give-up Bear Bull Bar) the chances are we will have at least 2 Legs up. Huge Bull bar late in a Bear trend is a give-up Bar chances of a reversal up are high.
a weak Bear Channel has a stronger possibility of what
a weak Bear Trend has a stronger possibility of a Bull BO that evolves into a TR or possibly 2 Legs up. Do not sell at Top of the channel due to the good context. I should be Buying the BO, Buying the close of BO bar, buy follow-through, buy PBs
Look at this Big Bear Bar, it is the biggest bar in more than 20 bars (80 Bars here!) Is this more likely to a be an Exhaustion Gap or Measuring Gap?
It is more likely to be an exhaustion near the end of the trend gap due to the sheer force in the bar with it being the biggest in so long and near the bottom of the trend/channel. The gap closed fairly quickly. Traders will BUY!
Channel Tests, most of them are Undershoots or Overshoots?
Most tests of lines are overshoots, (reverse after going beyond the line) they some times may undershoot
Most of the time when the market tests a line it slightly to a little above a line (overshoots)
TRUE or FALSE?
TRUE
Some times the market reverse up/down slightly before touching the line (undershoot)
TRUE or FALSE?
TRUE
Is this a Broad Bull Channel or a TR?
Most Broad Channels begin as TRs, therefore the market often is both a TR and a Broad Channel. If unclear trade them the same; BLSHS (Doesn’t matter what you call it TR or Broad Channel)
Bull Channel or TR? Look for HHS and HLs
Doesn’t matter as long as there is Deep PBs you can trade them the same; BLSHS however once clearly forming HHs and HLS than it is a bull channel(trend) and no longer TR
Bear Channel or TR? Look for LHs and LLs
It doesn’t matter as long as there are Deep PBs you can trade them the same; BLSHS however once clearly forming LHs and LLS than it is a bear channel(trend) and no longer TR and on this chart, in the TR it was clearly forming LHs and LLs.
Every TR always has both a Bull Channel(s) and Bear Channel(s) in it followed by a BO in either direction does this make them neutral?
Yes, it does make them neutral as they contain characteristics from both the Bulls and the Bears, eventually one side will win
TRs contains both the early stages of a Bull trend and the early stages of a Bear Trend
TRUE or FALSE?
TRUE
In this case, the Bears won
In this case, the Bears won
In a TR when they both contain the early stages of a Bear & Bull Trend simultaneously (confusing) do not enter until I see a Clear BO; a give up bar
In a TR when they both contain the early stages of a Bear & Bull Trend simultaneously (confusing) do not enter until I see a Clear BO; a give up bar
