What are channeling stocks and how do I invest in them to make money?

The topic of this article is the answer to the following question: what are channeling stocks and how do I invest in them to make money?
Basically, a channeling stock is a stock in a particular trading range. When you graph this stock, the prices of the stock are enclosed by two parallel trend lines. What do these trend lines do? The parallel trend lines connect the highs and the lows of the stock, thus forming the area within which the stock is said to be channeling. These trend lines do different things. This top trend line is a resistance line, and the bottom trend line is a support. Channeling stocks and their trading ranges are expressions of the normal price action and fluctuation in stocks. Channeling stocks do not express a trend in buying the stock, because stocks trend a minority of the time. Even when a stock does trend, it is still affected by its channel or trading range: the duration of the channel, its width, and the strength of the stock's breakout.
Generally speaking, sellers of a stock will stay at the level of resistance, the top line of the stock. This means that the stock will not sell at a higher level because they are preventing the stock from selling at higher prices. Buyers stay around the support level, which means that the stock will generally not drop lower because they will not pay lower prices for the stock. So when you graph the action of a stock, it won't have huge uptrends or downtrends. Instead, the price action is generally horizontal across the graph, with a trading range that could be wide or could be narrow, but still does not vary wildly. The only way that the trading range will change is if there is a serious amount of trading in a high volume that carries the stock to new lows or to new highs.

So how can you make money trading channeling stocks? Well, there are a bunch of different things you can do. First, you can purchase the stock at its support line level. Place a stop loss below the support because you are anticipating that the stock will move back up to the channel, which is what it will probably eventually do. If you want to take the other route, then short sell the stock as it reaches the resistance line. You do this because, of course, you are anticipating that the stock will eventually move back down to the support end. When it moves down to the support line, then you can cover the short sell and make a profit. However, if you are a breakout trader, then you can just mark the stock and follow it. When the stock breaks out of its channel, then you make the trade, either buying or selling. The reason that you do this is because you know, or at least expect, that the stock will eventually go back to its channel, since channel stocks' general behavior is pretty predictable. The intensity and direction of the break out is determined by the channel itself and the size of the breakout.
There are actually three different kind of channeling stocks: descending channel patterns, ascending channel patterns, and rectangle or box patterns.
If you have a channeling stock with a descending channel pattern, then the descending pattern is actually bearish for a short amount of time. However, the long term pattern will be an upturn. The stock channels downward until it breaks either the resistance or the support line. The best way to trade a descending channel stock is to wait until it breaks out on the upside before you actually buy the stock.
An upside or ascending channel stock is one where the channels tilt upwards. The path of least resistance is upwards. The best way to trade an ascending channel stock is through buying dips to the resistance line if you are interested in bounce plays for the short term. If you want to take the path of short selling, wait for a downside breakout.
A rectangle or box pattern is one in which you find after a trend a consolidation phase. This gives you a continuation pattern. If you have an upside breakout which is following an uptrend, then you see higher prices and you should buy. If you have a downside breakout that follows a downtrend, then you will find lower prices to follow and you should sell.

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