Enis Taner explains trend channels and how you can use them to trade.
Trend channels are often used in technical analysis to help traders through the ups and downs in a stock or anything else that trades. Trend channels encompass the peaks in valleys over a long period of time and helps traders potentially profit from volatility.
In the video above, Talking Numbers contributor Enis Taner, Global Macro Editor at RiskReversal.com, explains how trend channels are made. He also gives a recent example of how a trend channel could have made you money – and signaled when it was time to move on from the stock.
To learn more about moving averages and how you can use them in trading, watch the video above.
Glossary of Terms
A chart pattern in which a stock falls to a trough, rises, and then falls to that same trough again. This is considered to be a bullish indicator.
A chart pattern in which a stock rises to a peak, falls, and then rises to that same peak again. This is considered to be a bearish indicator.
The performance of a stock as it falls. A stock in a downtrend will make a series of lower highs and lower lows.
Head and Shoulders
A pattern in which a stock rises to a peak before falling, then rises to a higher peak before dropping, and then rising to a third peak that is not as high as the second before falling. This is considered to be a bearish pattern. (On the other hand, if the pattern is turned upside-down — with the stock falling to three different troughs — then the pattern is considered to be bullish.)
A stock's performance relative to the overall market.
A level that a stock is not expected to rise above.
A stock's change in trend. A stock in an uptrend can undergo a reversal and enter a downtrend, and a stock in a downtrend can undergo a reversal and enter an uptrend.
Short Interest Ratio
This number is calculated by dividing the number of short positions in a given stock, or bets that the stock will fall, by the average daily trading volume. It indicates how bearish Wall Street is on a given stock.
A level that a stock is not expected to fall below.
The range of price levels that a stock is trading in. The top of the range is typically considered "resistance," and the bottom is "support." If this range is "well-defined," then the stock is not expected to exit this range unless it is impacted by a major catalyst.
The performance of a stock as it rises. A stock in an uptrend will make a series of higher highs and higher lows.