Technical Analysis For Dummies, 3rd Edition

Chapter 11

Transforming Channels into Forecasts

In This Chapter

Getting to know channel drawing

Discovering breakouts

Finding out about the regression channel

Estimating ranges with pivot point support and resistance

Astraight-line trendline that extends into the future suggests where the price may go, but suggests only the general neighborhood; it doesn't tell you how high it may go. With a linear regression line, you expect future prices to cluster around the line, but some outliers always show up.

While nobody can create a pinpoint forecast, we can forecast the range of probable future prices. Range refers to the high-low scope of prices over a number of periods, generally weeks and months.

In this chapter, I describe the straight-line channel and its forecasting capabilities. I show you two ways to build a straight-line channel forecast and outline how to interpret the information you see on the chart. I also talk about using pivot point analysis to draw horizontal support and resistance.

Diving into Channel-Drawing Basics

A channel is a pair of straight-line trendlines (see ...