Parallel Channel Breakdowns

Parallel channels are one of the most commonly seen patterns in charts. They give many opportunities to profit whether or not the market is trending. Horizontal channels are better known as trading ranges when the market is not trending; rising channels occur when market is trending up and falling channels appear when the market is trending down. Regardless of the market conditions seen, parallel channels can be found in all shapes and sizes.

Trade Recap

During the weeks in mid-June to early July, 2007, S&P 400 MidCap E-mini future has been moving up steadily inside a rising channel, as seen on the 60-minute chart below. Although the MidCap has been moving near the all time high, it has been trading in a large trading range. This parallel shows a smaller movement within that range.

The parallel channels are identified when the two tops and two bottoms are identified (magenta boxes shown on chart above). Once this has been identified, the strategy is to wait for prices to approach the upper trendline or lower trendline to find a setup. There are two ways the prices can go: continue in the channel bouncing up and down the channel like a ping-pong ball or break above or below the channels; either prices accelerate the dominant trend or break and reverse in the opposite direction.

After the fifth contact was made, the market moved down to the lower trendline and pushed off from there.