Price channel is a kind of trend indicator.

Being a trend indicator, Price channel indicator was created by Ralph Nelson Eliot with the main objective of helping traders to know the direction of the market based on overbought and oversold market condition.

According to Ralph Nelson Eliot,Price channel indicator is based on two lines,the upper price channel and the lower price channel .Between the two is a green line that separate them and this represent the price oscillation.The lower price channel normally represent support while the upper price channel represent resistance in the market. As a support, the lower price channel can be considered as the lowest low price over a given period of time while the upper price channel can be considered as the highest high price over a given period of time. The price channel normally uses 20 period most of the time to derive its value. Price channel is also based on Exponential moving average thus its value is derived as follows;

Price channel upper= EMA(1 + upper price channel%/100)


price channel lower= EMA(1+lower price channel%/100)

 

 

Since the price channel is used to indicate the direction of the market,it therefore follows that when the price moves above the upper price channel,that will be an indication of an upward trend thus the trader should be trading in an upwards market..On the other hand when the price moves below the lower price channel,that will an indication of a downward trend thus the trader should be trading in a downwards market.Since price channel is also based on overbought and oversold in the market it therefore follows that when the price rises above the previous highest high price(upper price channel),that will be an indication of an overbought market thus the trader should close any buy position and open a sell position since the market will start moving downwards.On the other hand,when the price falls below the previous lowest low price(lower price channel),that will be an indication of an oversold market thus the trader should close any sell position and open a buy position since the market will start moving upwards.This is indicated as from the candle sticks chart below;


 

 

From the candle sticks chart above,there are 4 points,point A ,B,C and D.Point A and B represent the direction of the movement of the market due to overbought and oversold in the market while point  C represents the lower price channel which is the market support.Point D on the other hand represents the upper price channel which is the market resistance.Between point C and D is a green line which separates the two and it is where the price oscillation takes place.At point A, the price rises above the previous highest high price of upper price channel.This signals the trader of an overbought market condition thus informing them to close any buy position and open a sell position since the market is starting to move downwards as indicated by the arrow inside.On the other hand at point B,the price falls below the previous lowest low price of lower price channel.This signals the trader of an oversold market condition thus informing them to close any sell position and open a buy position  since the price is starting to move upwards as indicated by the arrow inside.


Recommendation:If you are a day trader just use 1 min,5 min, 15 min and 30 min timeframe while if you are a swing trader just use 1 hour and above timeframe if you want price channel indicator to work well for you

 

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