Stock Channeling refers to type of stock that trades within a price that is bound by two parallel trend lines. These two lines give the demarcation between the high and the low prices and the area between them is the area around which the stock is channeling.
The concept behind the two trend lines is not so hard to understand. The upper line acts as a resistance line, meaning, that the prices cannot go beyond that upper line. The lower line acts as the support line and represents the lowest prices at which the shares may be sold. Any channeling stock that breaks out of the lines tends to suffer some consequences in relation to the duration, the width and the strength of the breakout.
Since the resistance line is the highest price at which the stock can be sold, sellers tend to lurk at that upper line, thus preventing the stock from acquiring new and lower prices. As such, buyers are unable to make any move and the performance of the security remains at a horizontal position for a very long time. The range can only be resolved with a high volume thrust, either with new highs or lows.
The channeling stock offers a wide range of opportunities for trading. Traders who buy at the Support line range do so with an anticipation that the stocks will move back to the top of the channel. Other trades sell them off at the resistance point with the hope of a move back to the lower point so that they can realize profits. Other traders are always on the look out for a break out of the channel which means favorable prices to them.
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