The chart above shows the bounce off the bottom of the channel which was also short-term support (formed the previous week), near 743. It took little time to consolidate and began the move up toward the upper trendline of the channel. After four touches on the channel occurred, the prices broke out to the upside from the channel.

As mentioned earlier on the rules used to identify the break of the channel: 3% breakout from the trendline or wait for the prices to use resistance areas as support. In the 3% breakout filter, it’s best for swing trade or longer term. In this case, it’s an intraday trade, 3% (or 22 points) is too large to wait for a confirmation. In this case, a second filter is used to change the resistance level to support. In this case, the upper trendline of the channel will be used to reverse roles.

 
Figure 3 Long entry made at the break out confirmation

Figure 4 shows the price thrust slowed and reversed back to the upper trendline. The probability of the prices moving back down inside the channel is high but the looking for the bounce near the area is crucial. The trendline is not a glass window where if broken, then the setup is aborted. The prices must find support, a cushion instead of a glass window, and consolidate. The next step was to step for the move back higher to confirm that buyers indeed have come in. A long entry is taken when the bar moved higher than the high of the previous bar.

The target profit is immediately identified, at the beginning (the high) of the channel, at 803.

Figure 4 Profit target reached

Almost immediately the same bar that the long was taken, the prices spiked to the profit target. Although it was that it reached quicker than expected, but no complaints are lodged as the exit is taken when the 803 was touched.

When it comes to price channels, there are plenty of setups every day, depending on the timeframe. These can be easily identified with patience and practice. Many technical analysts use these for swing trades as well as intraday trades.