Wednesday, July 20, 2011
Extended micro-channels usually imply reversal and are often seen on both trend days and trading range days. After an extended trend move, a with-trend micro-channel represents a trendline break and and a higher high or lower low test and often will signal a reversal.
On trading range days, they represent a weak move to one end of the range, which usually breaks down and can break into a trend in either direction. A micro-channel beyond 20 bars loses any predictive value.
Micro-channels are traded like any other channel. A break and a 2 legged pullback is a with trend (in the direction of the MC) and a break and a 2L test represents a reversal.