Time for an oldy but a goody. The trading channel is one of the great illustrations of support and resistance in action and is liked by traders because of its relative precision as a signal. In this case there is a good sign of bullish divergence on the RSI as well which may shift the way in which traders enter the position but more on that in a moment. For now let’s start with the chart:

The slope of the 200 day moving average is a positive start in this case as it give the trader a good barometer of the prevailing trend. We also have the 50 period moving average headed in the right direction. The prevailing theme here is the channel itself.

Typically the trader would wait for a breakout from the pattern to place a trade. Generally the sentiment would be that both a break to the up or the downside would be a valid pattern. Given the lead in to this pattern and the moving averages I would only be interested in a break to the upside.

The other main reason for my upside bias is the breakout of the RSI channel which is a nice bullish outcome and is trade by some people on its own as a signal. You will need to keep your own counsel on that point but for everyone I think it’s a factor to keep in mind. The standard breakout strategy of this setup has a price target of around $0.50 based on the height of the pattern extrapolated from the point of the breakout. You will find around $5.48 a good support level so somewhere below that would be a decent stop-loss level for long-side traders.