As we continue to dig deeper into the art of technical analysis, I get to introduce you guys to more and more patterns to find on stock charts. The pattern we will be exploring here is called an ascending channel.
What makes up a ascending channel is an upward moving channel formed with two basically parallel trendlines which are upward sloping. In 101 terminology, two lines facing each other pointing upwards. The two lines connect a series of stock highs and lows over a given period of time. Here is a example chart using Microsoft:
Pretty easy to see now with this stock chart how a ascending channel actually looks. Now, my lines aren't perfectly parallel, but I think you get the idea.
Investing in stocks using this technique is fairly simple when playing a long term channel like the one above. If the stock breaks the channel's top, then that is a bullish sign as higher prices or possibly even a steeper ascending channel is to follow. On the flip side, if the channel is broken to the downside, it is a bearish sign of possibly lower prices to come.
(You can find out much more about technical analysis and trading strategy in the stock education archives. Also, subscribe to the feed and stay up to date going forward)