Ascending Channel

  

Categories: Charts, Metrics, Trading

An ascending channel is not your friendly neighborhood psychic’s connection to outlandish ghosts and ghouls. Bet you don’t want to wake up and see them standing by your bed at three in the morning! (Sorry, hope we didn’t give you insomnia.)

Turning to finance: sometimes a stock can move dramatically in a single day. Big news is released and people either buy shares in droves or dump them as fast as they can. in these cases, the stock chart can look like the Cliffs of Dover...flat, then a sudden move up or down
.
Most of the time, though, stocks just bounce around day to day. General market conditions and random buying or selling spurts can cause single-session blips. But within these uneven courses, stocks tend to have an overall direction (even if that direction is sideways).

Over time, longer-term trends emerge, with a stock edging its way higher, lower or sideways. Spotting these trends involves a process called technical analysis. Basically, people and/or computers look at a stock chart and see if there are any trends.

One simple technique is to draw lines connecting the high points and low points of recent trading to form a channel. Basically, once the lines are drawn, it will look like the stock chart is bouncing around inside a tunnel. Now, it is just a matter of seeing which way that channel is pointing. If the channel is moving steadily upward, it's called an "ascending channel." If it is going down, it’s a "descending channel."

If an ascending channel is present, we will see a consistent pattern in which two parallel lines move from lower left to upper right, suggesting an upward direction in price. The lows are higher over time, and the highs are higher too.

The ascending channel is a bullish sign in that it indicates that prices are rising...and rising...and rising. (As opposed to a descending channel, which shows a bearing pattern of prices going lower...and lower...and lower). Your goal in trading an ascending channel would be to buy on a downtick in hopes that the stock continues in an ascending pattern.

Related or Semi-related Video

Finance: What's the Difference Between B...159 Views

00:00

Finance a la shmoop what's the difference between bear and bull? bear

00:07

pessimistic bad growly things coming Negative Nancy boo bear...Bull [Bear walking into water]

00:13

awesomesauce life's good you take it by the you know horns alright we're gonna

00:19

apply bear and bull to markets here but they apply to a whole lot of things and

00:22

a bear market is actually technical nomenclature that refers to sustained or [Bear market definition on 100 dollar bill]

00:27

prolonged periods of time where stock prices generally just fall...three

00:31

four five six seven eight quarters where the market craps the bed down down down

00:35

the bear market pattern is different from just a correction when the market

00:40

takes just a short term dump and then well you know quickly recovers yeah like [Bear market graph]

00:45

it has a bad quarter or two and then starts climbing again well that's not

00:49

the big bad bear that's just a correction a bull market is just the

00:53

opposite it goes up up up like this guy in his balloon-powered house and that's [House with balloons travels up a stock value graph]

00:57

it both are dangerous in the wild but on Wall Street huh you just have to watch

01:01

out for the Bears [Bear chasing a woman]

Up Next

Finance: What is a Chartist?
26 Views

What is a Chartist? A chartist is a trader and/or analyst who relies on technical analysis and charts in order to make decisions for trading the ma...

Finance: What is Fundamental Analysis?
7 Views

A fundamental analyst is basically the opposite of a chartist - they care about a company's earnings, profit margins, gross rates, etc.

Finance: What is Technical Analysis?
12 Views

Technical analysts don't care how companies make their money or how they run their business; they're just interested in the numbers. The data. Yeah...

Finance: What is Breakaway Gap?
7 Views

What is a Breakaway Gap? A breakaway gap is the point in time when a stock price changes direction (it goes from increasing to decreasing or vice v...

Find other enlightening terms in Shmoop Finance Genius Bar(f)