How To Create A Profit Channel Using Trendlines
Parallel trendlines each serving as the basis for exiting a current position can create a profit channel. This is a method to attempt to protect potential profits while letting them run. Simply, if the stock owned remains in a consistent trend between the trendlines, the trade remains active with growing potential gains. If the stock breaks through the auto-modified order on either the upper or lower trendline, then the position is closed and the potential profit locked in. Here are the steps to creating this trendline channel.
1. Draw a Trendline for the bottom of the order channel
Shortuct: Click Shift+D to get the Trendline Drawing tool.
2. Click on the Trendline and choose create parallel line from the drop down menu.
3. Click and drag the parallel Trendline to create a top channel
4. Click on the lower trendline and choose order desired
This example will be closing a long position. Remember, the same technique can be used for covering a short position.
5. This places a stop order ticket on the chart with the initial order being placed at the price level represented by the trendline under the last bar on the chart.
6. Modify the path of the trendline by clicking and dragging the red dashed line in the projection space. (Optional)
7. Click the Sell {Sym} button.
Note: The yellow button indicates a close position order ticket. (A buy button is green. A sell button is red.)
8. Click Place Order to confirm and submit the trendline Sell (close) order.
9. A live trendline Sell (close) order now exists on the chart.
10. Repeat steps 4-10 for the upper trendline channel Sell (close) order
11. A channel of auto-modifying sell (close) orders based on the top/bottom trendlines now exists on the chart.
The trading tools work on either a LIVE brokerage account or a PAPER (simulated) trading account. Live market trading requires an account with TC2000 Brokerage. Click Here for more.