With a moving average as its foundation, are a natural trend following indicator. As with moving averages, the will lag price action. The direction of the moving average dictates the direction of the channel. In general, a downtrend is present when the channel moves lower, while an uptrend exists when the channel moves higher. The trend is flat when the channel moves sideways.
Sometimes a strong trend does not take hold after an break and prices move into a trading range. Such trading ranges are marked by a relatively flat moving average. The can then be used to identify overbought and oversold levels for trading purposes. A move above the upper denotes an overbought situation, while a move below the lower marks an oversold condition