Canal Exhaustion is quite similar to the Double Top/Bottom pattern. It works on similar principles based on current trend exhaustion. It also looks very similar because the Double Top/Bottom can actually be an example of a Canal Exhaustion, what you will see on exemplary setups below.
As you probably noticed the pattern above is simply an example of a right triangle formation. The resistance level at 1.4543 was tested 3 times until price finally broke through the bottom line of the canal. But be aware that even if this resistance level would got broken but the price wouldn’t reach the upper line of the canal it would still be a Canal Exhaustion pattern signaling that the canal breakout is coming. It can take different forms as long as the basic principle is maintained - after bouncing from the one side of the canal it can’t reach the opposing side. You can clearly see this on the following examples:
- © 2012 Forex Price Action
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