Following the other rules of technical analysis used mainly to generate forex signal trade we find another very popular price pattern to construct trade signals. The formation is called the channel.
To draw a channel on your trading chart look for two parallel trend lines. There are there types of channels.
Ascending, Descending, Horizontal.
To trade signals on such a formation is a pretty easy task. The channel gives a clear view of the size of the potential forex trade signal. It gives also quite a clear estimate of potential loss on every trade signal. Another very positive aspect when constructing forex trade signal based on channels is that it would give you an opportunity to trade the signal at least a few times within the same formation.
A channel normally would stay valid for a significant period of time.A trading cycle usually would start from the lower edge of the descending channel, giving us an opportunity to trade the signal, which would be a long position.For ascending channels trade signals starting from the top border, placing short trade signal. Place your stops behind the channel border and keep them tight.
A target for all trade signals based on channel trading would be an opposite border on such a formation. Your position could be realized and another trade signal could be traded in the opposite direction again.
You could construct your trade signals based on a break of the channel border. Please back up you decision with other technical indicators or use more a fundamental approach to support your trade.
A break of the top border of the ascending channel or the bottom border of descending one would not be a valid trade signal.Only a break towards top border of the ascending and bottom edge of the descending channel would be valid a forex trade signal.
The above rules make no sense when trade signal is placed on a horizontal channel. It such cases both trade signals could be placed based on the break of the channels border in either direction.Usually first break of a channel would be the false trade signal and the price would come back into the channel again.
Trading channels appear usually within strong price trend and tend to stay valid for a long time on higher time frames. Some trades would place trade signal on the beginning of the channel formation and top up positions by every price drop.
Trading channels are very much visible on the eurusd on four hour and daily charts over the second half of 2009 where this pair would follow strong trends for a long time giving nice a field to place many trade signals based on the channel formation.
Another important thing when placing trade signals based on channels is the fact, that descending or ascending channels normally would cross important resistance and support levels. When the price is gaining or dropping its value within the channel it will reach new highs or lows many times. It is crucial to take these levels to consideration. We will cover how to trade signals based on support and resistance in different material.
By 3dman_eu from Pixabay