Parallel Channel and Dynamic Resistance Line

Parallel Channel can serve as another example of using a trend line. Prices often fluctuate within the limits of two parallel lines: the main trend line and the channel line. To plot a channel on a chart, you need 3 points. Use the parallel channel tool. For an uptrend, first, connect the two lows, and draw a parallel line along with the high between them. Accordingly, on the downtrend, we first connect two highs and draw a parallel line at the minimum between them.

In the crypto market, the parallel line often does not work out. But a line connecting two or more peaks opposite to the trend line works in the same way as the channel line. In classical textbooks on Technical analysis, information on such a line cannot be found, but many modern traders call it dynamic resistance line.

Both of these tools perform the same function.

The main uptrend line can be used to open new long positions. The parallel channel line and dynamic resistance line can serve as a signal for realizing profits. Risk-averse traders can use the channel line to go short in the opposite direction of the primary trend. However, it is always dangerous and usually unprofitable to play against the mainstream. As with the main trend line, the longer the channel lasts, the more checkpoints confirm its existence, the more important and reliable it becomes.

A breakout of the main trend line is always evidence of a reversal in the nature of the trend. However, the breakout of the ascending channel line has exactly the opposite meaning and indicates the acceleration of the dynamics of the existing trend. Many traders regard a breakout of the upper line in an uptrend as a signal to enter additional long positions.

You can use the channel to gauge the strength of the trend. If price fluctuations do not reach the border of the channel line or dynamic resistance line, then this indicates that the trend is declining.

The channel can also be used to correct the main trend line. If prices go a significant distance beyond the upper border of the channel, then this indicates that the trend is gaining strength. Many analysts then draw a steeper major uptrend line. It is laid up from the last recession, parallel to the new channel line. The new, steeper support line often works better in practice than the old, flatter one.

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