the hAndbook of technIcAl AnAlysIs
Figure 12.31 Downtrending and Uptrending Channels on the 4‐Hour Chart of Silver.
Source: MetaTrader 4
inflection point–based bands/Channels
Finally, price may also be contained via the classical uptrending, downtrending,
and horizontal channels. It is important to choose significant inflection points for
drawing the channel lines. See Chapter 13 for more details on channel formations.
See Figure 12.31.
12.4 Chapter suMMary
We have seen how price is effectively contained within various bands. We have
also observed how moving averages may be effectively with such bands in provid-
ing clear entry and exits points. Bands may also be employed to signal breakouts
or reversals, depending on its sensitivity settings.
Chapter 12 Review Questions
- What are the basic functions of price containment?
- How does an increase in volatility affect each of the five categories of price
containment?
- Explain how you would tune a fixed‐percentage envelope to a dominant cycle
in the market.
- Under what conditions are the Bollinger bands more reliable?
- What are the advantages and disadvantages of using fixed‐value bands?
- Explain why it is unnecessary to confirm buy and sell signals with a stochastic
or Aroon oscillator that is of the same periodicity as a price channel.
