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# Bulkowski's Drawing 3 Point Channels

 BustedPatterns Candles ChartPatterns EventPatterns Small Patterns
 Market Industrials (^DJI): Transports (^DJT): Utilities (^DJU): Nasdaq (^IXIC): S&P500 (^GSPC): As of 11/13/2018 25,286 -100.69 -0.4% 10,433 66.94 0.6% 735 2.21 0.3% 7,201 0.00 0.0% 2,722 -4.04 -0.1% YTD 2.3% -1.7% 1.6% 4.3% 1.8% Tom's Targets    Overview: 10/11/2018 26,800 or 25,200 by 12/01/2018 9,800 or 11,000 by 11/15/2018 775 or 700 by 11/15/2018 6,900 or 7,700 by 11/15/2018 2,575 or 2,825 by 11/15/2018 CPICPI: on 11/9/18

This tutorial discusses drawing a channel when you only have three price turning points. Sometimes, the future price action will follow these channel lines, and you can use them to determine when the trend is going to change (price bounces off the channel line).

Inspiration for this article came from Erik in an email. He asked about the following paragraph from my book, Getting Started in Chart Patterns, Second Edition, page 29.

"When price pierces a downsloping trendline and makes a higher peak (note: this is the second, higher peak), connect the two peaks with an upsloping trendline. Then draw a new line parallel to the original trendline starting at the low between the two peaks. The lower trendline shows where price is likely to reverse."

I call this a three point channel.

## Drawing Up-Sloping Channels

Let us apply the technique to the Dow industrials (^DJI), which I show on the daily chart.

I drew a blue trendline along the peaks. Peak A appears, piercing the down-sloping trendline. Then price reverses to form a bottom at C followed by a second peak, higher than A at B. If you draw a line connecting A and B, you get an up-sloping trendline. This outlines the new direction price is expected to take.

Draw another line connecting valley C and parallel to the A-B line. This new line, which I show as line C-D, except extended into the future, forms the bottom of a channel. Price is expected to touch the bottom of the channel, and it does at D, reversing there.

This technique of drawing a channel with only three points, A, B, , and C works when the new price action follows a trend, which is rare. Although it does not always work, it can give you a jump on where price is expected to turn.

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## Drawing Down-Sloping Channels

Three point channels also work for up-sloping trends, too. Reference the ideal situation as depicted in the chart on the left.

1. Draw an up-sloping trendline along the valleys which I show as line D-E.
2. Look for price to pierce the trendline, moving lower and forming a valley at A.
3. Price recovers and forms a peak at C.
4. Price drops to a new low at B, below A.
5. Draw the A-B trendline.
6. Draw another trendline parallel to A-B, touching peak C.

The next bounce upward may touch the top channel trendline if all goes according to plan. Adjust the trendlines as future price movement dictates.

## Drawing 3-Point Channels: Book References

Two of my books discuss three point channels.

Trading Basics has the information starting on page 122. It's visual tip #41: "Drawing Three-Point Channels."

Swing and Day Trading has coverage of "Trading using Channels" starting on page 15.

-- Thomas Bulkowski