Channel analysis, or channeling, is a distinctive chapter in our Elliott Waves Theory journey and this is due to the fact that most of the traders ignore such a a simple concept when dealing with counting waves. Like in the case of a trend lines, the lines of a trend, the same applies with an impulsive move for example, meaning that unless specific trend lines are broken the move should advance forward in the original direction.
Channeling is a very important part of the analysis process, and it is vital in deciding when an impulse pattern has completed. When looking at an impulsive pattern there are two types of channel lines to be taken into consideration: the 0-2 trend line and the 2-4 trend line, and each of them has a specific purpose and gives clues in regarding to what kind of an impulsive move is forming.
It is important that no part of wave one or three to break the 0-2 trend line, even though from my experience it is allowable for part of wave two to partially break it. Also, what one should do is to project a trend line from the end of the first wave to the end of the third wave, even in the cases of an impulsive move, as this would give you clues regarding the possible end of the future fifth wave to come.
The recordings that come with this chapter will show you how to draw the trend lines and also will explain the importance of channeling.
With this chapter our short Elliott Waves project comes to an end and I hope after such a project a lot of the potential questions regarding the theory have been answered.