Ascending Channel On CSL

By Karo Cornips, advisor at Options Educator, TradersCircle

Channels provide one of the most accurate methods from which to trade in any market. By containing an equities price action between two parallel trend lines, as traders and investors we can determine points from which to buy and sell. Today we are looking at the ‘Ascending Channel’, which is widely used by technical analysts to predict share price movement.

Ascending channel patterns are a bullish pattern, where a stock moves higher within an ascending channel, as a continuation pattern. The stock will continue channelling until it is able to break either the upper or lower trend line. An upside break is bullish, while a downside break is bearish.

Appearance:  This is a channelling stock with an upward tilt. Two parallel trend lines control the stock’s price action. Price is not always perfectly contained, but the channel lines show areas of support and resistance for price targets.

Below the stock price is the primary ascending trend line, which connects consecutive higher troughs. Above the stock price is a second trend line, which is also ascending, that connects consecutive lower peaks. Upon reaching the lower trend line (support), the stock bounces until it reaches the upper trend line (resistance). Confirmation of this pattern comes after there are at least two contact points with the upper trend line and two with the lower trend line.

Important note about channels: The more contact points with the channel’s trend lines, the more reliable the pattern is.

Breakout Expectation:  Stocks trading within Ascending Channels are only able to reverse direction with a breakout to the downside of the primary ascending trend line. The strength of this breakout, the duration of the channel, and the width of the channel will determine how far a breakout may carry. A breakout is usually confirmed when the price closes above or below the boundaries of the pattern however, breakouts are not objective, and price sometimes retraces back to the channel.

The daily OHLC (open high low close) daily chart below shows an ascending channel on CSL ((CSL)) as indicated by the blue trend-lines containing the trending highs (resistance) and lows (support).

The below chart shows that the current share price is in the middle of the range, we wouldn’t contemplate a trade here until it was at the support or resistance of the channel and our trading rules were met, or unless we chose specific options strategies.
 

There are many ways that you can trade the channel formation. At this point we could enter a bullish position with the belief the stock was going to continue higher trading in the channel.