A price channel for a stock can be drawn by drawing lines connecting the stock price's peaks and lows over a period of time. Price channeling can be a very effective tool for stock analysis. Price channels require at least four points of contact (two each for the upper and lower lines). Price channels can move either upwards, downwards, or stay flat, but the two lines must be approximately parallel.
If a stock has fluctuated between approximately consistent highs and lows, a trader can use channeling to predict price peaks and lows in real time, and trade with that information. Channeling, therefore, is best for moderately volatile stocks which experience regular peaks and troughs. A breakout of a technical channel is seen as a bullish (on an upward breakout) or bearish signal (on a downward breakout). It is nearly impossible to predict a breakout of a stock from its channel, but if it does happening, channeling loses its relevance as a predictive indicator.