Price channel.
Price channel trading is one of the most popular strategies in the stock and forex markets. This strategy allows one to assess the dynamics of a trend over a given time period.
A price channel is an area on a currency pair chart bounded by two lines. One of these lines represents the minimum price values, and the other, the maximum.
The Forex price channel perfectly characterizes such market indicators as volatility and trend direction, taking into account the selected time period.
Construction of a price channel.
Channel boundaries are typically formed by support and resistance lines that connect the most significant highs and lows on the price chart.
The lines don't necessarily have to be parallel; the channel can narrow or widen, which indicates market dynamism.
To draw a support line, we select significant lows on the target time frame and connect them. We do the same for significant highs.
The result is the desired price channel.
After this, a single glance will be enough to tell which direction the trend is moving.
Reverse price movements against the prevailing trend will be characterized as a Forex pullback or price correction. This indicator is important when setting a stop-loss order, which should be greater than the maximum correction.
You can also use the Channel Forex Indicator , which will do everything automatically for you.
Price channel trading strategies.
There are many strategies that allow you to profit after constructing a channel:
1. Breakout trading – this trading option relies on the price making a sharp move and breaking through a support or resistance line.
Trading is carried out using pending orders, counter to the trend, which will trigger when the trend reverses.
You can read about one such trading option in the article " Breakout Strategy ."
2. Taking pullbacks into account – in this case, trading can be conducted either with or against the trend, but the latter option is riskier and more dangerous and is mainly used for scalping.
A trade is opened as soon as the price reverses within the channel and a new movement begins.
For more information on this strategy, read " Scalping in a Price Channel ."
Moreover, the constructed channel can be used both for creating trading strategies and simply for conducting technical analysis of a given section of the forex market.
