Channel Breakout

A channel breakout is a technical analysis trading strategy that involves identifying and taking advantage of a break of a price channel. Price channels are formed by drawing trendlines above and below a stock's price action to create a range that the price tends to trade within.

When the stock's price breaks above or below the established channel, it is considered a signal that the stock's trend is changing and that a potential trading opportunity may be present.

Traders may use various technical indicators, such as moving averages or momentum oscillators, to confirm the potential breakout signal and to help identify the direction of the trend. Once the breakout is confirmed, traders may enter a long or short position in the stock, depending on the direction of the breakout.

This strategy works as following: if after N days the closing stock price is higher than the maximum of the highest daily price out of these N days then we have a buy signal. The sell signal is generated when the current closing price falling lower than the lowest price during N day period. In the example N day is equal to 7 days.

The strategy is used to identify when a stock price is moving outside its normal trading price range. To avoid false signals it is often applied in combination with other strading strategies.

Formula

IF C(t) >= MAXIMUM{ H(t...t - m) }
THEN GO LONG
ELSE
IF C(t) < MINIMUM{ L(t...t - m) }
THEN GO SHORT
where C(t) is the closing price on day t;
H is the high of the day;
L is the low of the day;

Stock Research Links

SASR V PM AIT TROW UNP STT MCK UVV CWT HAS ELS

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