What is a rising channel pattern?
A channel pattern is a combination of two lines that are parallel to each other and in combination, these two lines look like a channel when placed on the price chart. In the study of technical analysis, the channel falls under the category of continuation patterns and is one of the most reliable trends following pattern.
This pattern is important because it helps to indicate the continuation of a bullish or bearish market. When the direction of the price channel is upward, it is considered as the Bullish Price Channel and when the face of the price channel is in the downward direction, it is called the Bearish Price Channel.
Channel patterns are an integral part of technical analysis but successful traders combine these techniques with other technical indicators to maximise their odds at success.
In the Rising Channel, the upper trend line connects the swing highs in price while the lower trend line connects the swing lows. The upper line of channel represents the resistance line while the lower acts as a support line. A channel can be used as an entry pattern for the continuation of an established trend, as part of a trend following strategy.
Why buy IndusInd Bank?
Channel patterns are a commonly used technical analysis tool and majorly a choice of breakout traders. One of the important criteria to bear in mind is there should at least be four points of reaction within the channel. A channel is an area between two parallel trend lines, upper trend line (resistance line) and the lower trend line (support line).
This stock is currently rising in channel and its lower trend line, which is placed around Rs 560, has acted as a support many a times, which is indicated on the chart. At the same time, white trend line is also providing support to the stock. Stock is trading above short-term and medium-term moving averages, which is a conductive scenario for the script. Above mentioned technical rationale suggest buying opportunity in the stock.
Figure.1. Rising Channel pattern and buy signal on IndusInd Bank
Profit Booking
As per the pattern, one should book around upper trend line, which is placed around Rs 740 mark, and targets can extend towards Rs 777. So, one can consider profit-booking near swing top around Rs 700 and higher side towards Rs 777.
Stop Loss
The entire bullish view negates on a breach of the support trend line and in the case of IndusInd Bank, we will consider Rs 560 as a stop loss level closing basis.
Conclusion
We recommend buying IndusInd Bank around Rs 605 with a stop loss of Rs 560 for higher targets of Rs 700 as indicated in the above chart.
(The author is Head - Technical Research at Narnolia Financial Advisors Ltd.)
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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