Ascending Channel - Explained
What is an Ascending Channel?
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Table of ContentsWhat is an Ascending Channel?How Does an Ascending Channel Work?Trading the Ascending ChannelAcademics Research on Ascending Channel
What is an Ascending Channel?
An ascending channel is a type of trading channel. A trading channel is defined as a range within which price shifts. An ascending channel or rising channel can be defined as the upward movement of prices in between very accurate limits. These limits are known as the support level and the resistance level. An ascending channel is spotted in the chart when there is a bullish signal, i.e., the presence of higher highs and higher lows. In an ascending channel, there is a high tendency for the continuation of the bullish signal until it reaches a point where the lows fall below the previously documented higher lows.
How Does an Ascending Channel Work?
In the ascending channel, entering short when prices are at the resistance level and entering long when prices are at the support level is the best way to take advantage of the upward trend. Although, the probability of gaining from the trade is higher when one goes long when the price is at the support level and happening in a trending market (high probability trades). Stop-loss orders and profit targets are set by traders with the resistance and support levels. The trend indicates a continuous upward movement when a breakout rises above an ascending channel. On the other hand, The trend indicates a likely change of trend when a breakout falls below an ascending channel.
Trading the Ascending Channel
- Support and resistance: When stock prices attain the channel's trendline, a long position can be opened by traders and closed when prices reach the channel's upper line. A good risk/reward ratio that ensures adequate spacing between parallel lines should be set by traders.
- Breakouts: When the price of a stock breaks above the channel's upper line, traders can decide to buy a stock. Breakouts are not accurate to be used alone. Hence, other technical indicators should be used alongside breakouts.
- Breakdowns: When prices break below the channel's lower line, it is advisable for traders to test for signs such as, the frequent falling of prices before reaching the upper trendline which might indicate a pattern weakness before taking a short position.
Academics Research on Ascending Channel
- Analysis of Energy Kuznets Curve Trends of Countries with Different Income Levels [J], Hong, W. (2011). Analysis of Energy Kuznets Curve Trends of Countries with Different Income Levels [J].Statistical Research,12. According to the criteria established by the World Bank in 2008 for classifying high-income,middle-income and low-income countries,the article selected 22 high-income countries,17 middle-income countries and 13 low-income countries to fit energy Kuznets curve of each country and calculate their turning points by applying the method of energy Kuznets curve analysis and using the data of GNI per capita and energy consumption from 1980 to 2009.As a result,the changing characteristics of energy Kuznets curve of countries with different income levels were generalized.The conclusion was that: with the increase of income,energy Kuznets curves of different countries were shown as approaching gradually to the top from the left ascending channel of the "inverted U" then changing to the descending channel.
- Strengthening of Japan's Economy and the Competitiveness of East Asia [J], Zhi-qin, S. H. A. O. (2007). Strengthening of Japans Economy and the Competitiveness of East Asia [J].Contemporary Economy of Japan,1. Japan had experienced an economic recession for more than 10 years,after the collapse of the bubble economy.Japanese economy has been in the track of recovery since 2002,and has recently moved into an ascending channel.The strengthening economy of Japan,which is the worlds second largest economy after the United States,plays an important role in enhancing the regional competitiveness of East Asia.It also has far-reaching influences upon the improvement of regional financing,investment,and exports in East Asia.
- Institutional Quality Analysis of Trade Policy: A Literature Review Based on Institutional Stability, Han-min, X. F. H. (2009). Institutional Quality Analysis of Trade Policy: A Literature Review Based on Institutional Stability.Journal of Zhongnan University of Economics and Law, (5), 10.
- The Effects of the Sharing Economy: How Does Internet Finance Influence Commercial Bank Risk Preferences?, Qiao, H., Chen, M., & Xia, Y. (2018). The Effects of the Sharing Economy: How Does Internet Finance Influence Commercial Bank Risk Preferences?.Emerging Markets Finance and Trade,54(13), 3013-3029. In this article, we provide an evidence on the effects of the sharing economy by studying internet finance. It aims to explore how internet finance affects the relationship between commercial bank risk preferences and monetary policy, and discusses whether this impact varies across heterogeneous banks. The results suggest that having a loose monetary policy encourages a preference for risk. In addition, internet finance alters the sensitivity of bank risk behavior to monetary policy. Internet finance has a heterogeneous influence, depending on a banks ownership (i.e., state or private) and size. At privately owned banks, internet finance has only a moderate impact on the bank risk-taking transmission channel of monetary policy, unlike the subsample of large banks.
- Inflation and the finance growth nexus, Huang, H. C., Lin, S. C., Kim, D. H., & Yeh, C. C. (2010). Inflation and the financegrowth nexus.Economic Modelling,27(1), 229-236. This paper re-investigates whether there exist inflation thresholds in the financegrowth linkage. By applying the Caner and Hansen's (2004) instrumental-variable threshold regression approach to the dataset of Levine et al. (2000), we find strong evidence of a nonlinear inflation threshold in the relationship, below which financial development exerts a significantly positive effect on economic growth, while, above which, the growth effect of finance appears to be insignificant. Furthermore, we also find a positive and significant relationship between finance and productivity for inflation rates below the threshold level, but no such relationship is detected for inflation rates above the critical level. This result suggests that finance influences growth mainly through the productivity channel.