Interpretation of Price Channels Price Channels can be used to identify trend reversals or overbought/oversold levels that denote pullbacks within a bigger trend. A surge above the upper channel line shows extraordinary strength that can signal the start of an uptrend. Conversely, a plunge below the lower channel line shows serious weakness that can signal the start of a downtrend. Once an uptrend has started, chartists can move to a shorter timeframe to identify pullbacks with oversold readings. A move below the lower channel line indicates oversold conditions that can foreshadow an end to the pullback. Similarly, short-term bounces within a bigger uptrend can be identified with Price Channels. A move above the upper channel line signals overbought conditions that can foreshadow an end to the bounce.
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