| Updated: September 12, 2025Further talk on micro channels
This lesson will cover the following
- Breakouts from micro channels may suggest different scenarios
- Why are micro trend lines important?
Breakouts from micro channels may suggest different scenarios
Similar to traditional channels, micro channels can be considered as sloping trading ranges; thus, a magnetic pull appears to prevent prices from breaking out far from these ranges.
If a breakout from a micro channel occurs, it usually lasts for 1-2 bars because traders are locking in gains. Consider a bull micro channel. Eventually, a bar forms below the low of the preceding bar, leading to a breakout from the channel to the downside. There were probably sellers entering short trades, but the main reason for the breakout was buyers taking profits. After the next 1-2 bars, other buyers entered the market while some sellers exited, causing the subsequent bar to close above the high of the prior bar. This can be viewed as a fake-out from the channel, so some traders will look to go long as the price moves above the high of the previous bar. Other traders may anticipate a reversal in the underlying trend.
The context may provide a hint as to which scenario is likely to develop. First, if the underlying trend is a strong downtrend and the bull micro channel is nothing more than a pullback, the breakout below the micro channel may be followed by additional shorting. If the price moves above the breakout bar, bears are likely to place a stop order to sell below the low of the previous bar.
Second, if the bull micro channel forms as a breakout from a trading range within a strong uptrend, a breakout to the downside may be just a pullback in the underlying uptrend. Bulls are likely to place an order to buy a few pips above the high of the prior bar.
A breakout from the trend line of a micro channel may serve as a signal to enter in the direction of the trend. Consider a bull micro channel formed in an always-in long market. If a bar forms with a low below the micro channel’s trend line, some traders may go long at the high of that bar. This may be interpreted as a one-bar bull flag and a failed downside breakout, thus indicating a buy opportunity.
A bull micro channel may appear in a trading range or in a downtrend. In this case, a trader should consider additional factors before going long above the failed downside breakout. If the channel forms in the upper area of a trading range, it may be wiser to avoid buying the downside fake-out and instead wait to see whether the upside reversal stalls. If this reversal lasts for only 1-2 bars and then a bear reversal bar appears, it offers a selling opportunity, especially if the set-up occurs near the top of the trading range.
A bull micro channel may be breached to the upside (above the trend channel line), implying that the market is attempting to start an even sharper uptrend. However, if this attempt fails and a large bear reversal bar appears, it is simply a buy climax; therefore, traders should look to go short.
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If a micro trend line is drawn across ten or more bars, the probability of a tradable reversal increases significantly. Such a trend may not last long; it is more like a climax. Therefore, it is logical to expect a pullback or reversal. One should look for an entry on the breakout pullback following the climax.
The importance of micro trend lines
A break of a micro trend line is crucial not only when this line forms part of a micro channel, but also when a strong trend is yet to develop. If a trader identifies a strong downtrend with huge bear trend bars, little or no overlap between successive bars and no pullback bars forming for a while, he or she will be eager to go short. In this case, the trader should look for any bear micro trend line and go short below the low of any bar that breaches it. Every breach may be a failed breakout and therefore an opportunity to enter a short position. The entry may be a few pips below the bar that breaches the bear micro trend line.
Short, steep trend lines (drawn across two successive bars) provide an opportunity to enter in the direction of the trend. If the underlying trend is steep, a small pullback bar may breach a short micro trend line. This bar may become a signal bar to enter in the direction of the trend.
In a pullback during a trend, a micro trend line is commonly observed. In a pullback during an uptrend, if one detects a micro downtrend that continues for two to ten bars and there is a breach of the bear micro trend line, the set-up may suggest a failed breakout (and therefore a short entry). However, because this occurs during a bull trend (and often near the exponential moving average), it is not appropriate to take such a trade. One may end up in a short position at the low of a bull flag and close to a rising moving average, which obviously offers very poor odds.
Astute price action traders will wait to buy this failure. They will go long exactly where the trapped sellers exit the market. Their long positions will be a breakout pullback buy, as the price breaches above the bear micro trend line, pulls back and then continues in the direction of the breakout (which is also the direction of the underlying trend during the trading day).