Continuing the price plot in the chart below, we see a couple more gaps, a small one in late August, and a large one in late October (again). The channel lines continue to plot the Support and Resistance points. The channel lines just above the ERRC's upper-line 'catch' the dropping prices. A classic dead-cat bounce occurs, then downward movement continues for a time. Then, from early February thru mid-April, an uptrend occurs. It ends when the Support of the blue upward TW Channel's line is broken.
And, finally, the chart below brings us up to date as of 01/31/07. It's entertaining to see the prices take a swan-dive (Apr - May) out of the uptrend at the left, and lands on the upper-line of the ERRC in the gradually uptrending TW Channel. After a short battle at this Support level, the Bears win-out and the prices stair-step down the downward-sloping TW Channel lines.
The drop stops at the the Support charted by the bottom-line of the gradually up-sloping ERRC. The Support charted by this line is tested twice more before an uptrend take the prices back up above the middle-line of the ERRC.
It looks like the top of the ERRC will be reached again, but will it stop there? Since the upper-line of the ERRC charts a Resistance level, there will no doubt be a struggle to break up through it. Perhaps the price may eventually reach the 16.5 to 17.0 level again. By late spring, maybe?
OK, my final chart below is the kicker. In the preceding charts of JBSS, you saw the TeamWork Channels at work. TeamWork Channels consist of a single ERRC, plus at least one, but usually many Standard Error Channels or Standard Deviation Channels applied on top of the ERRC, using the same Start Date and End Date that the ERRC uses.
In placing the Standard Error/Deviation Channels (SE/DCs) the Units value of the channel is set to determine the distance from the center line (LRL) that the outer lines will be drawn. These are usually set to whole-unit increments (1, 2, 3,...99), but it is often helpful to set them to half- or even quarter-unit increments (.5, 1.0, 1.5, 2.0, 2.5...99/.25, .50, .75, 1.0, 1.25,...99). Which increment you use is dependant mostly on how volatile the prices are, but you should start with whole-unit increments, and add in smaller ones if needed.
The chart below shows the Start Date (SD) and End Date (ED) used by the five ERRCs I placed in my JBSS chart. Surprised there were only 5? Really, there were only 5. And these were drawn on trends well back in time.
Check out the SD and ED information on this chart. With this information, you could open a chart of JBSS in MetaStock and build the exact same chart I used for these illustrations. In fact, that leads me to my first Channel Challenge for Technical Analysts.
I challenge you to do two things: first, duplicate the TW Channels I've placed in JBSS's chart, and then draw an accurate ERRC on the downtrend on the right, on which I didn't place an ERRC...the downtrend that began just after the prices broke out of and away from the steep downward ERRC labeled "E". You can simply provide me with your SD and ED dates (in a Comment) if you want me to check it, or you can email it to me.
The first challenge with give you practice with drawing the TW Channels, but on dates I've already determined work very well. The second will give you practice at drawing an ERRC on a downtrend that offers its own challenge...do you include the huge gap in the Hand-Drawn Range (HDR) of the ERRC? Or, do you draw it from the peak just after it, near the end of 2004?
If you take up these two challenges, I'd love to hear from you. Be sure to include the SD and ED for the downtrending ERRC you drew for the second part of the challenge. If, while you are working on all of this, you discover any other channel(s) that seem(s) to work as well as mine, feel free to provide its/their SD and ED information as well. I'll recreate your chart, and give you my opinion.
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