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Parallel Channel Pattern

A parallel channel pattern showcases a directional rally wobbling between two trendline barriers and is most likely to provide a counter-trend move.

What is the parallel channel pattern?

A parallel channel pattern is a technical crypto chart pattern that is often used in price analysis to capture a counter-trend move. It is one of the highly observable patterns and gives multiple trading opportunities to traders.

There are two types of parallel channel

Rising parallel channel pattern (also known as ascending parallel channel pattern)
Falling parallel channel pattern (also known as descending parallel channel pattern)

Note: In theory, these two types are exactly similar but working in the opposite direction

How to identify these patterns?

Under the influence of this pattern, the price action travels steadily in one particular direction.During an uptrend, the coin chart would show a series of new higher highs and higher lows, and conversely, a series of lower lows and lower highs during a downtrend.Thus, traders can connect these peaks and troughs using two trendlines, reflecting an image of a ‘channel.’

a)Rising channel pattern

Rising parallel channel pattern

b)Falling channel pattern

How to trade channel patterns?

The channel pattern provides two trading opportunities, i.e., reversal and breakout.

1)For reversal: the traders can capture the consolidation between two trendlines. Therefore, the long entry for a bullish reversal from the support trendline in an ideal situation should provide a move to the overhead resistance trendline and vice versa. However, these are short-term point-to-point trades and should be avoided if the channel range is too narrow.

2)For breakout: the rising channel is more likely to breach the support trendline and indicates an imminent downfall. Conversely, a falling channel should give a bullish breakout from the resistance trendline to complete the pattern and provide a potential upswing.

Note: during the breakout trades, the market participants can wait for a retest(pullback) to the breached trendline, as it will validate if the resistance trendline is flipped to suitable support to bolster further rally and, thus, vice versa in a rising channel support breakdown.

Example:

A bullish breakout from the falling channel pattern may give its targets at peaks of lower highs; as in this example, the XMR price rallied till the T2 level.

However, inside the pattern, the reversal signal at the extreme level signals the potential move to the other end.

For a bearish breakdown from a rising channel pattern, the expected targets are troughs of higher lows, as in this example, the XTZ price plunged below the T4 level.

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About author
Disclaimer

From the past 5 years I am working in Journalism. I follow the Blockchain & Cryptocurrency from last 3 years. I have written on a variety of different topics including fashion, beauty, entertainment, and finance. Reach out to me at brian (at) coingape.com

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.

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