Forex channel strategy - “Racer. Channel strategy - an easy way for a newbie to Forex Channel strategies
From the article you will learn:
Let's first find out what a trading channel is.
This is a price model, in which the change in the currency quote occurs in a certain trading range over a period of time that we can determine, usually after the breakout of this corridor.
Best Broker
Thus, one side of the channel border is the resistance level, the other is the support level. You need to look at the direction of the trend to determine an up channel, downtrend or sideways (read -,).
And most importantly, a hundred years ago, I made a booklet-brochure, which I did not upload - its basis is how to build a channel correctly, if necessary, download it for like:
Download
Watch
It's time to figure out how to build trade channels
For channel trading, Forex provides very convenient opportunities. An upward channel is plotted by a trader using a trend line through the last two lowest prices in the last two waves. Next, a parallel line is drawn at the highest point of the price in the wave, while it should be located between the two lower points.
A descending channel is built by a trader using a trend line through the two highest price points, candles, bars. Next, a line is drawn parallel to them, which is built through the lowest point in the wave. At the same time, the minimum point must be between the two lower lows.
Also, you need to understand that there may be confirmed and unacknowledged channels.
Verified channel- this is the one in which the upper as well as the lower border were the border for the price, two times each.
Then they become support and resistance. If the line of support and resistance is based on only one point, then it can be considered unconfirmed.
Channel trading is an often applicable and very attractive strategy for many traders. It is regularly applied in practice. This strategy is considered highly profitable with a relatively low risk level.
The trading channel should be traded by dividing it into three zones: the line in the middle of the trading channel and, following the figure, about 10% from the support and resistance lines of the channel.
You need to trade not in the inner zone of the channel, but only from its borders - buy and sell levels. The direction should be chosen from the near border to the opposite one. To apply this strategy, it is necessary that the width of the trading channel is not less.
The position is entered when the price has reached the sell or buy zone. Login is performed and by.
A protective order should be placed outside the channel at a distance of ten to twenty points or according to your risk management rule, that is, as a percentage of the amount of the deposit. You need to take profit when the price reaches the border level on the opposite side.
You can also close some part of the profit in the middle of the channel, the other half of the position after reaching the border on the other side.
Major mistakes when trading in the channel
- The trade is entered inside the channel. In this case, the position "catches up" the price. You need to trade only from the channel boundaries, so you need patience to wait until this level is reached.
- not far enough away, this leads to a loss of position if the price slightly leaves the channel lines.
- at the wrong moment. It is recommended to wait for the first opposite fractal to close, which is associated with frequent retesting of the channel boundaries.
- Closing the deal too early. You need to follow the discipline or use an incomplete exit from the deal.
- Closing a position manually. It is better to do this using stop orders and when the price is close to the borders.
Channel trading also goes well with the signals of some indicators, for example, which gives a signal for a reversal, as well as on.
If the stochastic has formed, and the price at that moment is far from, such a signal should be ignored. If a signal is displayed when the price has reached the channel border in the 10% zone, then this signal is considered true.
Professional traders often use additions to open positions at these moments. But beginners timidly skip such a signal to add to the position.
Trading strategy during the breakout of the channel boundaries. Also a commonly used trading strategy
Trading at the breakout level of the channel border is a simple opening of a sell position, if the price breaks through the support zone, or a buy position, if the resistance zone is broken. The strategy will be effective in conditions of a trend in the market, while it is completely ineffective in a flat state in Forex.
The opening of a position is performed when the channel level is broken at some levels, they should be located at a certain distance, determined by you empirically, from the channel line.
Stop loss order is placed inside the channel. Preferably in the middle, of course, this should not contradict your trading strategy and risk management in particular. It can also be located in front of the border of the broken channel.
The breakdown of the channel border triggers the following several scenarios for the development of price movement:
- Strong, abrupt price movement in one direction with large trading volume.
- Price movement and retesting of the border of the channel that was broken, such a return to the border. And then, the price continues to move towards the breakout. Thus, the breakout, rollback, continuation of the movement works.
- False channel breakout. It occurs when the price, which has broken through the support or resistance line, returns to the movement in the channel after a short break.
For newcomers to trading, the best option for Forex channel trading is to enter the market after the second testing of the broken border. This is the most reliable signal even considering that there is a possibility of missing a strong movement. You shouldn't be upset about this. Opening trading positions on the movement, they often meet with a false breakout, and this leads to losses.
It is also important to understand that when starting to trade, you need to accept its rules. For example, a buy signal is not reliable if the upper boundary of the ascending channel is broken, just as the broken lower boundary of the descending channel is not a sufficiently significant reason to enter the market.
Therefore, when applying the strategy of trading on the channel breakout, you need to apply the following simple rule. A reliable signal occurs when the lower zone of the ascending channel and the upper zone of the descending channel are broken. It is important to understand that a breakout of the ascending and descending channel in their direction is also possible, but only if it is confirmed. This can be a breakout of the channel boundaries with a large volume of trade.
We present to your attention a very interesting and simple trading strategy that even a novice trader can understand. It is called a channel Forex strategy using fractals and is suitable for intraday trading.
Forex channel strategy tactics
1. Trading is carried out on H1 or H4 timeframes.
2. The construction of the channel is performed on two lows and one high or two highs and one low, depending on the direction of the trend.
3. It is necessary to trade from the borders of the channel and inward.
4. The market is entered when the price reaches one of the channel boundaries, as well as in the presence of an additional signal from the indicators for a reversal.
5. If there is no confidence in the reversal, the Forex channel strategy recommends opening two positions: an order inside the channel and a pending order in the opposite direction.
6. An order is always placed inside the channel, even if the price breaks through its borders. In the event of a false breakout, the price will return and the trade will be opened automatically.
7. The primary stop loss is outside the channel. Its size is determined by market volatility.
Forex channel strategy management
Since this Forex channel strategy is used for intraday trading, it is best to use Elder's smaller screens to manage the trading session. In this case, trading is carried out according to the following rules:
1. You can ignore the price movement within the channel.
2. If the channel is wide enough, then you can use the aggressive method of adding positions. This can be done on M5 or M15 timeframes using a stochastic. At the same time, it is important to set the stop of the added position so that it is covered by the profit of the main transaction in the event of a reversal or a surge in price.
3. The stop loss level remains unchanged until the end of the first rollback. With the formation of the first opposite fractal, the Forex channel strategy recommends moving the stop loss to the “open price plus or minus one point” break-even level.
4. If the price moves in the direction of an open deal and should soon reach the channel border, then you need to move the stop loss again and stop adding orders.
5. Orders are not opened for a breakdown of the upper border in an uptrend and for a breakout of the lower border in downtrend.
Frequent mistakes beginners make when working with a Forex channel strategy
1. Entering trade within the channel. This can lead to the triggering of the stop loss or the need to set too large a stop that exceeds the profit. It is imperative to wait for the price to reach the channel border.
2. Setting the primary stop loss close to the channel border. This can lead to a stop-out position due to price noise or outliers.
3. Premature closing of a position. The trade must be closed when the target or stop is reached. If the size of the deposit does not allow losses, then the Forex channel strategy recommends moving the stop to breakeven as soon as such an opportunity arises.
Trading with the trend with the forex channel strategy
If the price has broken through the channel boundaries, then trend trading begins. At this point, there are already a number of open positions set, as required by the Forex channel strategy, on the opposite border of the channel. The trader is already in a trend. Otherwise, i.e. if there are no open positions, you need to find the most successful entry points. The main thing is to remember that when the channel is broken on an uptrend, a pending sell order is set, and on a downtrend, a pending buy order is set. If the price moves within a horizontal channel or has formed a triangle, then both orders are opened.
When trend trading, you need to pay attention to the support and resistance levels. If the price moves near an important level, then it is better to postpone entering the market and not place orders directed in its direction, otherwise you can get to false break... After breaking through the level, the price behavior is monitored. In such a situation, the Forex channel strategy recommends entering the market in the event of the formation of "remorse of traders", i.e. the price returned to the broken level and bounced off it. A pending order is placed according to the fractal.
Aggressive Entry into Forex Channel Trading
In case of a strong trend, you can use the tactic of aggressive entry to conduct long-term trading. The principle behind this strategy is pretty simple. First, an order is opened, as required by the Forex channel strategy, then the M1 timeframe is opened and positions are added according to the same principle. When the price passes 35-40 points, 2-4 additional positions will already be opened. This completes the additions.
When the movement comes to an end, the stop is transferred to the open price of the last order. As a rule, before the end of the trend, the price moves in a zigzag manner within the channel. At this point, the forex channel strategy can be used. A breakout order is opened and an additional 3-4 positions are opened, the stop is set at the breakeven level. In total, the trader has 6-8 positions open, which guarantees a certain profit, since even if one stop is triggered, this loss will be covered by a profit.
Bollinger Bands are essentially an indicator that is largely identical to moving average envelopes. Its indicators and signals are functions of market volatility. Changing bands depends on the direction of the trend, as well as on the speed of its movement.
The main function of this indicator is to assess the possible duration of short-term price changes. Bollinger Bands are three bands, the location of which is influenced by the nature of the price movement. It is a convenient and effective indicator for trading in the price channel on Forex.
There is no need to download and install Bollinger Bands, since this tool is included in the standard set of indicators on the MetaTrader 4 platform.
Channel indicator trading basics
The indicator's operation is characterized by certain trading signals:
- the continuation of the trend is characterized by the expansion of the bands, and the end of the trend causes their narrowing;
- if the price goes beyond the channel boundaries, this also serves as a signal for the continuation of the trend;
- by the nature of the price movement in a narrow corridor, one can predict high market volatility after exiting the flat and a strong trend.
- short-term trading - 10;
- medium-term trading - 20;
- long-term trading - 50.
The middle line always serves as a resistance line and upon breaking it, the price must necessarily reach the opposite border of the channel, which is often used by scalping fans during the Asian session.
Standard Forex Channel Trading Strategy
It should be noted that the usual trading strategy Bollinger Bands are most relevant for traders who prefer to maximize profits in a calm market. It is based on trading down and up relative to the channel boundaries. You should start using this strategy by placing the Bollinger Bands price and the Stochastic Oscillator indicator on the chart.
As a rule, price movement occurs from one border of Bollinger Bands to another and back. This is what the standard channel trading strategy is based on in the Forex market. The price at the upper border is a signal to enter the market and open a “Sell” position. Accordingly, the approach of the chart to the minimum indicates the possibility of a Buy deal.
Before opening orders, you should wait for the signals to be confirmed by the second indicator. For trading, it is most rational to use the M5 and M15 timeframes, and the width between the Bollinger bands is at least 50 points. For protect the deposit from losses when trading in the price channel, Stop Loss is set.
When a sell position is open, the level of this stop order is located several points above the maximum price trading day... For a “Buy” order, Stop Loss is set 3-4 points below the minimum price of the current trading day.
Aggressive Price Channel Trading Option
The main feature of this strategy is the possibility of a significant increase in potential profit due to the execution of a large number of transactions in a relatively short time period. The trader trades on 5- and 15-minute timeframes strictly within the bands, regardless of the direction of the global trend.
The first Buy order is opened when the price is at the lower border of the indicator band. In this case, the stop loss should be set 3-4 points below the formed local minimum. After the price crosses the middle line, this order is placed several points below it. This technique will allow you to automatically close the deal with a profit upon rollback.
A small digression. Two more effective method trade:
If the price, having rolled back, crosses the middle line again, a second buy order is opened. This should be done after passing the formed local minimum. Stop-loss in this case is set just below the middle Bollinger line. In situations where the price continues to move upward, two options are possible, namely:
- the chart crosses the resistance level (stop loss is moved to this line);
- bounce - taking into account the Stochastic readings, a Buy order is closed and a Sell order is opened.
Traditional price channel trading strategy is currently one of the most popular and widely used by both beginners and professional traders. It is in this system that the basic rule of the market is implemented - “Buy low, sell high”. It should be noted that such an approach to trading is most effective when the price moves sideways and is absolutely not suitable for a downtrend and an uptrend.
The main advantage of an aggressive strategy is the ability to get a fairly large profit with a minimum start-up capital, but it is associated with a high risk of losing your deposit. Regardless of the chosen trading strategy, Bollinger Bands should be used in conjunction with other indicators, including: Stochastic Oscillator, as well as MACD and ADX.
Hello fellow traders!
Today I will tell you about one of my favorite strategies. We will talk about trading price channels and how to make a profit when trading in them.
First of all, let's get back to the fundamentals technical analysis and figure out what a trade channel is.
Trading channel Is a limited trading range in which the price moves for a certain time. The borders of the trading channel are limited by two lines: support and resistance.
Also, like trends, trading channels are divided into 3 types:
- ascending;
- downward;
- lateral (flat).
Let's consider each of them in more detail and, using their example, we will get acquainted with ways to correctly build a price trading channel.
- is formed on an uptrend movement. As you know, an uptrend is successively increasing highs and lows, therefore, to build an upward trading channel, it is necessary to determine the beginning of the trend movement and the first two lowest lows ( reference points) draw a trend line ( main channel line). Then, parallel to it, project another trend line to the highest point between them.
We look at the picture below:
- is formed on a downtrend. The construction rules for this channel are similar to those used for the upstream channel construction. Only the main channel line is drawn through the pivot points plotted on the highs (since the movement is downward).
We look at the picture:
Side trading channel (flat)- is formed when the price for a certain time moves in the horizontal price corridor, while new highs or lows are not formed. This market condition is called consolidation and arises either at the end of the current trend, or before its further continuation.
You should also pay attention to the fact that Trading channels can be confirmed and unconfirmed. A channel is considered confirmed when the price touched its borders (support and resistance lines) more than 2 times. Otherwise, the channel is considered unacknowledged.
TRADE IN THE CANAL
Before we go directly to the rules of trading in the trading channel, it is necessary to "finalize" our trade channel by adding a few important lines.
A line equal to 50% of the total width of the range (for example, if the channel width is 600 pips, then this line will be drawn at the level of 300 pips from any border of the channel). Two lines drawn inside the channel from its borders at a distance equal to 10% of the total channel width (if our channel is equal to 600 pips, then the lines are drawn at a distance of 60 points from the support / resistance lines).
Unclear? Then we look at the picture:
Trading in the channel is carried out from its borders (support and resistance lines)... In an ascending channel, we buy at the lower border and sell at the upper one. We fix the profit at the opposite border, as soon as the price enters the zone beyond the 10% line.
Why is that?
We remember that the market is not an exact science and the price behavior in the market is unpredictable, so we can only assume, and in order to minimize risks, we give part of the potential profit to the market, closing the deal before the price touches one of the boundaries.
You can also enter a deal from the 50% line. This level is strong level support / resistance. But in this case it is necessary to be very careful and it is advisable to enter the market only in the direction of the channel (trend).
Where to place a stop loss? Unfortunately, there is no definite answer to this question. It all depends on your deposit, money management, pair volatility and the time frame on which you work. I adhere to the rule to remove the stop loss for the previous significant market extremes.
If you use indicators in your trading, you can look for a signal to enter / exit a position from them.
In this figure, we see how the price enters the 10% zone, while the stochastic has an intersection of the fast and slow lines, as well as an exit from the overbought / oversold zone. As you can see, this indicator gives, albeit a weak, but still an additional signal to open a position.
BREAKDOWN TRADING OF PRICE CHANNEL BOUNDARY
Nothing can last forever and any channel will be broken, it's just a matter of time. What should a trader do if this happens? Everything is very simple! In this case, the channel ceases to be a channel for us, and only one of its boundaries (upper or lower) remains, which will be a simple trend line, and this line, in turn, will be a support / resistance level.
And we will trade on the breakout of the level (if you suddenly don’t know how to trade from the levels correctly, then read on).
What are the scenarios for the development of events after a price breakout? There are only 3 of them:
- The price breaks out the level, but the breakout turns out to be false and the price returns to the current price channel... A false breakout is a rather unpleasant thing, but it is a very serious signal that there will be more attempts to break this level.
- The price breaks through the level (true breakout) and rushes towards the channel breakout with a purposeful movement
- The price breaks the channel border, goes some distance towards the breakout, and then returns to the broken level. A level retest is in progress.
The safest point to enter a position will be to open a trade on a return to the broken level.
Also, when trading on a breakout of the price channel (and when trading within the trading channel) it is imperative to wait for the bar to close. It is very important! With hasty actions, you can easily run into a false breakdown and this will seriously fray your nerves.
Another important point worth mentioning is the direction in which the channel was broken. If the breakdown is in the direction of the broken channel, this is a strong enough signal to enter. If the breakout is carried out in the opposite direction, you need to be very careful and careful, since there is a high probability of a false breakout.
But that's not all. There is one more important nuance, to pass by which we have no moral right! And this nuance lies in the fact that any trading channel consists of the same trading channels, but built on lower time intervals. In turn, this channel is part of a channel built on a higher time frame. I call this the “channel nesting principle” or “the matryoshka principle”.
Take a look at the picture below. On it, the "blue" trading channel is plotted according to daily charts, and the "purple" channels are plotted according to hourly charts.
The methods of working with such channels are absolutely the same, but it is important to understand that a price channel built on a higher time frame is more important than channels built on a lower time frame.
Let's summarize and collect what is written above into a specific algorithm of actions.
First, we look to see if the price is currently moving within the trading channel.
- Determine the direction of the trend / channel and outline its boundaries.
- We are waiting for the price to reach one of the channel boundaries.
- We are waiting for a breakdown or rebound from the level.
- We place orders.
Once again, I repeat that it is advisable to trade (for a breakout or a pullback - it does not matter) in the direction of the trading channel, since this will coincide with the direction of the trend.
At this point, let me finish. If you still have questions, then ask them below in the comments or write letters through the feedback.
Good luck in trading!
P. S. I almost forgot. In order to determine the trading channel and correctly draw its boundaries, it is necessary to "fill your hand". I can help you with this. To do this, open the daily chart of any currency pair, rewind a few years back and begin to "outline" all the channels that you see. Believe me, over time, you will get better at it.
Channel trading is one of the most profitable and easiest in Forex. Its success is based on the fact that the price is in constant motion, then falling, then rising. As a result of such movements, price channels are often formed, which can be both short-term and maintain a trend for a long period of time, bringing a considerable profit to the trader. Trading within the channel is based on price rebounds from the boundaries of the price channel, which are support / resistance levels, which are usually used as or. In this article, we will look at what channel trading is, what advantages and disadvantages it has, and also analyze the main channel trading strategies. See also which are the best.
Types of price channels
There are three types of price channels:
At the same time, the price channel can be confirmed when the horizontal level or trend lines have support in the form of two points of contact with the channel boundaries, and unconfirmed when the channel passes through only one point. Such a channel is considered unreliable; it is recommended to build channels at least two points apart.
Building price channels
It is believed that the simplest and most profitable price channel is the horizontal (flat) channel, the boundaries of which are the support level on the one hand and the resistance level on the other. Moreover, the width of such a channel must be at least 30 points in order for it to bring good profit. However, building trend channels also does not take much time and effort. To build such a channel, it is required to draw trend lines along two lows from below and two highs from above so that the trend lines are located at an equidistant distance from each other. Allowed when separate Japanese candles or their tails go beyond the price channel, but in general price rebounds from the channel boundaries should be observed. Over time, the price channel becomes outdated and additional channels need to be built. It is not recommended to delete outdated channels for some time, as the price may still return to them.
Benefits of channel trading
The main advantage of a channel trading strategy is to maximize the profit that can be obtained from multiple trades. When trading in a channel, you can apply a profitable strategy, when a number of deals are opened in the direction of the main trend, and they are closed when the total is reached. You can open deals in both directions, both for selling and for buying, when the price touches the opposite border of the channel. This mainly applies to those channels that are located at an angle of 45 ° or less. However, if the channel is at a sharper angle, it is recommended to open trades exclusively to the side. Another advantage of channel trading is the minimal level of risk. Stop loss is placed outside the channel boundaries at a short distance from the opening price, which makes channel trading even more profitable and safer.
Disadvantages of channel trading
The main disadvantage of channel trading is that a breakdown of the price channel can occur at any time, which can lead to significant losses. This is why it is so important to use a safety stop loss. Its application will avoid the accumulation of unnecessary losses and protect you from unplanned losses. In addition, it is always necessary to have at hand breakout strategy because a trend reversal or price exit from a flat is always followed by a large movement, which carries a high profit. Another disadvantage of the channel trading strategy is the close position of the stop loss to the opening price. Sometimes levels arise when 1-2 candles go beyond the channel boundaries, knocking out stop-losses, and then the price continues to move in the desired direction. It is also not recommended to prematurely transfer the position to, since the price can retest the level, which will lead to the closure of the position. It is necessary to wait for the formation of the first or the moment when the price reaches the middle of the channel. It should also be borne in mind that the price does not have to touch the channel border. Sometimes it does not reach the channel border a little and unfolds in reverse side... This must be borne in mind when setting goals for profit taking.
Channel trading strategies
Consider several options for channel trading strategies that can be attributed to, since the examples described below are completely missing indicators. All we need is trend lines that act as support / resistance levels. The simplest strategy is to directly bounce the price from the channel boundaries. When the price bounces off the lower border of the channel, we enter buy, when the price tests the upper border of the channel, we open sells. You can enter trades both with a market order, waiting for the formation of the setup, and with the help. The target for taking profit will be the opposite border of the channel. Also, don't forget about placing stop-losses, which must be placed outside the price channel. It should be remembered that it is necessary to enter trades not within the channel, but at its borders.
To avoid the occurrence of false breakouts, you need to go to the lower one to determine more accurate entry... For example, on the 5-minute chart, we see the following situation when the price breaks the upper border of the channel at point 2:
By switching to the one-minute chart, we can determine the end of the correction and a better price position for entering a trade.
As you can see from the above examples, channel trading is quite an interesting and profitable way to make money on. Channel trading strategies do not require detailed study and great knowledge. Trading can be carried out on any timeframes and trading instruments, including. You can start trading this strategy almost immediately after reading this article. All that remains is to choose a suitable broker using our independent one.