In Post #004, I mentioned that I almost always draw a "Fenceline Channel" just outside an ERRC that I've drawn, by setting the Units value so the Std Err Channel line is drawn just a little outside the ERRC's outer lines. Setting the distance it falls outside the ERRC outer line is a bit tricky, but it is critical to provide a worthwhile test of potential breakouts from the channel.
It's a bit hard to describe how I get the Fenceline Channel where I want it. Please review the two charts I'll post below. The one just below is similar to one we saw in Post #004. Note how the Outer Line of the ERRC falls almost half-way between the Fenceline Channel and the nearest Std Err Channel line just inside the ERRC. This makes for a good Fenceline Channel.
My rule of thumb for the distance a Possible Fencline Channel (PFC) must be outside the ERRC's outer line, can be stated like this, "the ERRC's outer line must be no closer to the PFC than 1/3rd the distance between the PFC and the first Std Err Channel line within the ERRC's outer line." If it is too close to the PFC another Std Err Channel will be used just a bit farther out, using a Units value at least .25 Units larger than the Units value used for the PFC.
Specific measurements are not needed,... "eye-balling" the distance is sufficient.
In the last illustration in this post, you'll see an upward-trending green TW Channel that shows a PFC that proved to be much too close to the ERRC's outer line. I set that line to red, though it's hard to see because it sits right next to the ERRC's outer line. I drew another Std Err Channel at another .5 Units distance outside the ERRC, to use as my Fenceline Channel.
My comments and illustrations thus far were aimed at giving you some hints on how I use the Fenceline Channel to test whether the price has exited sufficiently to be deemed a 'validated break-out' from the ERRC, ending the current trend. Basically, in a Daily chart, if the price Closes outside the Fenceline Channel, I deem it a "likely/tentative breakout", and I make a note to watch it the next day. If it then Closes back inside the ERRC's outer line, I assume the trend continues and the current ERRC is still in force. If on the next day the price continues is apparent breakout through the Fenceline Channel, I then assume the breakout from the ERRC is "real", meaning the trend has ended...and I use this to guide my trading decisions. Remember, it must Close outside the FenceLine Channel to be deemed even a "likely/tentative breakout".
THE OVERALL TW CHANNEL
In Post #005, I mentioned that I often draw an "Overall TW Channel" and promised you an illustration of how useful it can be. Below are two illustrations, both using a Daily chart of Microsoft (MSFT). The first shows a full view of all the data so you can see the placement of the Overall TW Channel. The second shows a close view near the end of the chart. You can see in both charts how the Overall TW Channel lines provide Support and Resistance at key places. The second chart makes this more readily visible.
Overall TW Channel SD: 07/01/1986 & ED: 09/26/2000
I think you can see that the Overall TW Channel can indeed provide strong clues as to how the price will behave. It can often explain why the price stalls (finds Resistance/Support) at certain levels where, on a normal chart, there is no clue as to why it is doing so. It is my belief that when such mysterious price behavior occurs, placing additional accurately placed Teamwork Channels in the chart will reveal the Resistance/Support that is causing the seemingly anomalous price behavior.
Remember, please, that in these illustrative charts, I will draw more Std Err/Dev Channels than I would normally use in my charts. For instance, in the first of the two charts just above, I've drawn them top to bottom of the Overall TW Channel. Initially, when analysing the validity of the Overall TW Channel, this many lines would be useful, but once assured it was placed properly, I would normally remove all but a few of them. All I really need is enough of them to surround the current price, to give me clues as to what the price might do.
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========= See you in my next post....-Robert ========
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