Trading Channel

A stock is said to move sideways. But it doesn't move directly sideways. It's not like one of those heart machines right after someone dies. It's more like a player in dizzy baseball trying to get to the plate after spinning around five times. The stock goes up for a bit, then it goes back down, then back up, flips to the downside again, and so on. It's moving...it just isn't getting anywhere.

The actual pattern describes a channel. Like...the stock is rubber ball bouncing through a two-dimensional tunnel. It keeps hitting a high point and coming down, before getting to a low point and bouncing back up.

The top of the channel is called resistance. Every time it gets there, traders say, "Ah, that's as high as it usually gets...better sell." Shares have trouble getting above that level.

The lower end of the channel is called support. Each time it gets down there, traders say, "It never goes below this level; I can make a quick buck buying it here and selling it when it gets toward the top of the channel." The stock usually bounces back when it reaches that level.

The resistance and support (represented by two parallel horizontal lines drawn across recent highs and lows) define a trading channel. It's the area a sideways-moving stock sticks to.