# Horizontal Channel: What It Means, How It Works, and Example

> **Definition**
>
> A horizontal channel is a technical pattern with trend lines connecting pivot highs and lows, indicating a price range where buying and selling pressures are equal, causing sideways movement.

## What Is a Horizontal Channel?

Horizontal channels are [trend lines](https://www.investopedia.com/terms/t/trendline.asp) that connect variable pivot highs and lows to show the price contained between the upper line of [resistance](https://www.investopedia.com/terms/r/resistance.asp) and the lower line of [support](https://www.investopedia.com/terms/s/support.asp). A horizontal channel is also known as a price range or sideways trend.

### Key Takeaways

*   Horizontal channels are trend lines that connect variable pivot highs and lows.
*   In a horizontal channel, buying and selling pressure is equal, and the prevailing price direction is sideways.
*   A horizontal channel provides traders with precise points for entering and exiting trades.

![Image](https://www.investopedia.com/thmb/fJWYbdiN9Yo9GZAwf7LuaiprMDk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Horizontal-Channel-May-2021-01-3bc51ead214943baa4c96dae1b8f9fe4.jpg)

*— Image by Sabrina Jiang © Investopedia 2021*

## How a Horizontal Channel Works

A horizontal channel or sideways trend has the appearance of a [rectangle](https://www.investopedia.com/terms/r/rectangle.asp) pattern. It consists of at least four contact points. This is because it needs at least two lows to connect, as well as two highs. Buying and selling pressure is equal, and the prevailing direction of price action is sideways. Horizontal channels form in periods of price consolidation.

Price is framed out in a [trading range](https://www.investopedia.com/terms/t/tradingrange.asp) by the pivot highs (resistance) and pivot lows (support). Trend lines are drawn on pivots to give a visual picture of price action. A new high in the price above the horizontal channel is a technical buy signal. A new low in price below the horizontal channel (or rectangle pattern) is a technical sell signal.

There are three types of channels: horizontal, ascending, and descending channels. Channels that are angled up are called [ascending channels](https://www.investopedia.com/terms/a/ascendingchannel.asp). Channels that are angled down are called [descending channels](https://www.investopedia.com/terms/d/descendingchannel.asp). Ascending and descending channels are also called trend channels because the price moves more dominantly in one direction.

The horizontal channel is a familiar chart pattern found in every time frame. Buying and selling forces are similar in a horizontal channel until a [breakout](https://www.investopedia.com/terms/b/breakout.asp) or [breakdown](https://www.investopedia.com/terms/b/breakdown.asp) occurs. This type of channel combines several forms of [technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp) to provide traders with precise points for entering and exiting trades, as well as controlling risk.

To identify horizontal channels:

1.  Manually look through charts to locate channel patterns.
2.  Utilize [stock screeners](https://www.investopedia.com/investing/getting-started-with-stock-screeners/), such as Finviz.com, or a service that automatically recognizes channel patterns.
3.  Subscribe to a service that provides a daily list of chart patterns.

## Trading a Horizontal Channel

Horizontal channels provide a clear and systematic way to trade by providing buy and sell points. Here are the trading rules for entering long or short positions.

*   When the price hits the top of the channel, sell your existing long position or take a short position.
*   When the price is in the middle of the channel, do nothing if you have no trades open or hold onto your current trades.
*   When the price hits the bottom of the channel, [cover](https://www.investopedia.com/terms/s/shortcovering.asp) your existing short position or take a long position.

## Horizontal Channel Example

Elevate Credit, Inc. ([ELVT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ELVT)) shares traded within a horizontal channel since [gapping](https://www.investopedia.com/terms/g/gap.asp) lower on Oct. 30, 2018. Over this period, traders had the opportunity to short-sell the stock at the channel’s upper resistance line three times (red arrows).

Conversely, traders had the chance to buy the stock at the channel’s lower support line on three occasions (green arrows). [Stop-loss orders](https://www.investopedia.com/terms/s/stop-lossorder.asp) would sit just above the channel’s upper resistance line for short positions and just beneath the lower support line for long positions, while profits would be taken at the opposite side of the channel.

![Image](https://www.investopedia.com/thmb/dwj-d-TqlA4MPyFs4degKVizJr8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_INV-final-Horizontal-Channel-May-2021-02-1dd5ef169a2049f3acfc50ded3801b2b.jpg)

*— Image by Sabrina Jiang © Investopedia 2021*

## What Are Horizontal Levels in Technical Analysis?

Horizontal levels in technical analysis are price points where resistance or support previously occurred. They allow traders to determine entry and exit points on their trades.

## How Do You Trade a Horizontal Channel?

When the stock's price hits the top of a channel's trend line, sell your position or short a position. When the price hits the bottom of the trend line, then enter into a buy trade. When the price is in the middle of the trend line, remain neutral.

## What Are the Basic Principles of Technical Analysis?

The basic principles of technical analysis are trends, entry/exit signals, indicators, and patterns.

## The Bottom Line

Horizontal channels, used in technical analysis, provide traders with specific points of when to buy and sell. They are clear to use and provide a systematic approach to trading, typically occurring in times of price consolidation.