channel trading
TRANSCRIPT
Monday, 08 July 2013 19:00 GMT by Walker England, Forex Trading Instructor
This copy is for your personal, noncommercial use only. Please click here to print the article.
Channel Trading Basics
Creating a Forex trading strategy does not have to be a difficult. Today we will review the basics of
spotting and trading price channels.
Article Summary: Creating a Forex trading strategy does not have to be a difficult. Today we will review the basics of spotting and
trading price channels.
Pricing channels can be an excellent technical trading strategy for trending markets. One of the reasons they are so popular with market
technicians is that e they are easily recognizable on your charts, and can be just as easy to plan a trading strategy around if you know what to
look for. Today we will review how to identify a pricing channel, and how to organize a trading strategy using this charting pattern.
First, let’s learn how to find a pricing channel on our charts. This can be done by identifying and connecting a series of highs and lows on
your graph, which will act as levels of support and resistance. Below we can see a descending channel on the AUDUSD 2Hr chart. Notice
how resistance has been formed by connecting the two previous highs to form a line of resistance (price ceiling). Since resistance is
descending, support (floor) should be descending as well as the AUDUSD creates a series of lower lows. These lows should run parallel to
the resistance line that was previously drawn completing the price channel pattern.
The AUDUSD in our example today is considered a descending price channel, but it should be noted that channels may also rise in an
uptrend and trade sideways in ranging markets. Once the pattern has been identified along with its direction, a trader can then prepare to
enter into the market.
Learn Forex – USDCHF 4Hour Trend
(Created using FXCM’s Marketscope 2.0 charts)
DailyFX - Channel Trading Basics http://www.dailyfx.com/print-article.html?filename=/forex/education/tr...
1 de 2 26/01/2014 17:38
Trading the Channel
Once a price channel has been identified, identifying areas to trade becomes a very straight forward proposition. Trading pricing channels is
much like trading a range since we will pinpoint areas of support and resistance for out entries. In a descending pricing channel, such as the
AUDUSD seen below, traders will look to sell the market on a test of resistance. Traders will look to sell in this gradual downtrend and take
advantage or price reaching to lower lows. It’s important to understand that trading channels is ultimately a support and resistance strategy.
That means that traders will wait for their opportunity to enter the market and not trade when prices reside between these levels.
Learn Forex – USDCHF Channel Entries
(Created using FXCM’s Marketscope 2.0 charts)
Exiting Positions
Regardless of your trading strategy, traders should always have a plan to exit the market. One of the benefits of channel trading, is that stop
and limit levels are built around our previously defined levels of support and resistance. In a downward sloping channel, stops should always
be placed above a level of resistance. In the event that price begins printing higher highs, traders will want to exit positions to sell the
AUDUSD as quickly as possible.
Profit targets will be set using the support line of the pricing channel. Traders will extrapolate this value by extending our line on the graph.
Traders will want to exit positions with a limit order, when price touches this area of support. If the channel is to continue, price may bounce
back to resistance at this point, continuing our descending charting pattern.
---Written by Walker England, Trading Instructor
To contact Walker, email [email protected] . Follow me on Twitter at @WEnglandFX.
To be added to Walker’s e-mail distribution list, send an email with the subject line “Distribution List” to [email protected] .
Do you want to trade Forex, but don’t want to monitor charts full time? Take advantage of FXCMs auto
trading Mirror Trader platform. For a review of the software and a complete platform walkthrough, click
HERE.
© 2014 DailyFX an FXCM company. All Rights Reserved.
DailyFX - Channel Trading Basics http://www.dailyfx.com/print-article.html?filename=/forex/education/tr...
2 de 2 26/01/2014 17:38