Have you seen the “Channeling Stocks” television commercials where the 20 something geek says good-bye to his co-workers on his retirement day?  “How did you do it?”, they ask.  The geek then respond, “I simply buy and sell the same stock, over and over again.”.


The logic seems so simple, but does it work?  When looking at historical price tables, the answer is definitely yes.   Looking back at history, it’s easy to see how you could have made money by buying at the low end of the channel and selling at the high end of the channel.  But looking forward is an entirely different story, especially knowing that those magical price channels can and do change! Look at the sample McDonalds chart below for evidence of changing price channels.

Can price channels help me make money in the future? – The first point to realize is that while price channels can help you, they are only a tool, and there are no guarantees.  But the second point is that YES, price channels are the easiest, and probably most widely used and most successful tool in technical analysis.

How to use price channels to buy low and sell high

  • Step 1 – Always look at stock charts in BAR or CANDLE mode, as shown in the Yahoo Finance chart above.  This will show you not only the closing point of the day, but the range of prices throughout each day.
  • Step 2 – Determine the channels.  In the chart above, there are at least two distinct price channels, and a shady (and scary!) area in the middle for the junction between the two channels.
  • Step 3 – Draw lines around the channels using the low and the high points from within the channels.  But recognize that this is not an exact science, but only a rough guide for what the future may hold.
  • Step 4 – Determine what type of channel you have.  If the lines are not parallel, then skip this stock and move on to another, unless you also know something about ascending and descending triangles and other chart patterns.  For trading channels, parallel lines work best.  But note that you will never see perfectly parallel lines for indefinite periods of time.  It is a subjective call at best.
  • Step 5 – Determine where the stock lies in the last channel (channel on the right).  If it is in the upper half or quarter of the channel, then the bias is for the stock to head back down.  Note, “bias” does NOT mean guarantee!  If it is in the lower half or quarter of the channel, then the bias is for the stock to head back up.
  • Step 6 – Buy when the bias is up, and sell when the bias is down.

Variations of buy low and sell high

Other helpful guidelines

  • Know your own risk tolerance level before placing any trade!
  • Use stop losses as needed to protect yourself from drastic channel changes!
  • Accept full and complete responsibility for your own trades.  There will be no bailouts for your losses!