Price channels play an important role in keeping your focus as the best thing about them is that these can be plotted directly over the one things that matters the most - Price.
Price Channels provide a structured framework to analyze market prices and its movement. Although there are many ways of interpreting and trading these price channels - I am going to lay out how one can use price channels to trade reversals.
Once the price move exceeds a given price channel trend line, we can assume that there will be some sort of a exhaustive move. The volatility around a trend line channel can be seen as a range that you can expect the price to trade around.
Here is an example
You can see the price in the above 5-min chart of E-mini Nasdaq Futures has been moving down in a well defined channel. As the prices move, one has to keep adjusting these trend lines a bit to ensure that you capture the normal volatility and the most up-to-date price action.
As the prices kept drifting down, we get a 5 min price bar that goes below the trend line, but ends up as an outside bar. Outside bars are a two-bar chart pattern that occurs when the current price bar has a higher high and a lower low than the prior bar. Combining an outside bar with a price level or some other study can be used as a powerful reversal pattern.
So you can see how the market rejected the move down and formed a Bullish outside bar. That is a good bar to take an entry. Price Action traders would place a Buy Stop order above the high of this outside bar to play a reversal trade.
Ideal to trade such a setup when the channel is against the underlying trend in a higher time frame. That means you are seeing some sort of a pull back and joining the main trend by trying to time a entry that is good from risk/reward perspective as well.
Here are few names to consider for Swing trades in the coming few days. Always good to make a watch list of such names and keep an eye. As the prices move and comes towards your plan. Simply execute with appropriate position size to keep it within your risk profie.
Here are couple of charts to consider for swing long as the price plays out.
$LVGO & $TNDM
I do post Swing long entries whenever possible on the Tradealike platform as well.