Michael 1.

Parsons

continuing with a new trend. In the early stages of trend formation there
is a strong possibility that a market will give you a false signal. If this
were the case, a premature entry would put you on the wrong side of the
market. So this is a good low-risk rule of entry.
To illustrate, if you had been in a downtrend and the inside channel line
(the one acting as resistance) was broken by price fol lowed by price bars
closing beyond that line you would then buy or enter long. In the opposite
scenario of an up trend you would then go short after the inside channel
line were broken and price bars closed beyond the line.
If the market had been in a trading range or sideways pattern and both your
channel lines are horizontal then you would enter when either of these
lines is broken and price closes beyond that line. Figure 1-7 provides an
example of a conservative entry.

Enter on the

Crude all

The previous inside channel li ne now becomes your initially stop. So

the rule then would be that if price exceeds an inside channel line
and then returns back within the prior channel, then your trade is a
bust and you need to exit. A prior channel usual ly works well as a
temporary stop, but there is a problem that can sometimes arise when
using this method. The prior channel line is already headed in the
opposite direction of your trade and so the stop limit will naturally
increase with time, increasing risk right along with it. Obviously
then, an additional limit on your trade is needed. If a new channel has

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