Similar to Bollinger Bands, price channels form boundaries above and below the price line and can be used as indicators of volatility. Price channels are created by specifying a number of periods that will chart an n-period high or low around the price line. For example, a 20-day price channel will chart the level of the highest high in the last 20 days above the price line, and will chart the level of the lowest low in the last 20 days below the price line. Price channels differ from Bollinger Bands in that they use maximum and minimum price values instead of moving averages as boundaries.
When the price line breaks above or below the upper or lower price channel respectively, a new high or low becomes present. When the price breaks above a 20 day price channel, the price has reached a 20-day high and could potentially begin an uptrend. In this situation, the upper price channel breakout may signify that it is a good time to buy the stock.