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 is a Chartist?26 Views

00:00

Finance allah shmoop What is a chartist Well here's a

00:07

chart and here's a chart and here's a chart All

00:11

right Well these are pages from the investing bible of

00:15

a chartist A chartist is an investor really a traitor

00:19

as they tend to own stocks for a much shorter

00:22

period of time than a longer term Really invest or

00:26

type person a chartist relies solely on the patterns The

00:31

pattern's right there These are all patterns imputed by the

00:34

charts that they you know sitting poor threw for hours

00:38

and hours So check out this chart see how the

00:40

plotted data closely follows the characteristic line there The characteristic

00:46

line basically is plodded through all those dots Yes So

00:48

they're going to stare at that try to figure out

00:50

where that line is going in the future right Get

00:52

the crystal ball or all right Well let's look at

00:54

this one where the data forms what looks like Well

00:57

the head and shoulders of someone who you know doesn't

01:00

have a neck that's Just common pattern in trading And

01:03

you know if you stopped looking at it and two

01:06

thirds of the way through there it's heading down Well

01:08

Maybe you'd be short the stock for a few days

01:10

and then you see it bottoming and then you'd be

01:13

long and try to make money that way Good luck

01:16

All right len look at this chart Where is right

01:17

here where the data appears to We'll break away from

01:21

the established pattern which was all just kind of boring

01:24

Lee along down here And then suddenly everything goes up

01:26

Yeah start doing its own thing Well maybe the company

01:29

reported a good quarter or ah you know the government

01:31

cut taxes again Everything went up So these were the

01:34

tools of the chartist The chart's a chartist is the

01:38

opposite of a fundamental investor meaning that she doesn't know

01:42

or care what the company does for a living Really

01:45

she doesn't care about their p e ratio nor their

01:47

profit margins nor their debt levels on their balance sheet

01:51

nor much of anything fundamental about how their business runs

01:55

Chartist just care about the pattern they glean from the

01:59

charts and all the charts always work until they don't

02:03

And what happens when the meteor hits that is that 00:02:06.0 --> [endTime] predictable on a chart Ah

Up Next

Finance: What is Fundamental Analysis?
6 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...

Finance: What's the Difference Between Bear and Bull?
159 Views

What is the difference between Bear and Bull? Bear and Bull are two different ways to describe the market. If there is a bear market, investors are...

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