Price channel.
Price channel trading is one of the most popular strategies in the stock and foreign exchange markets. It is this construction that allows you to evaluate the dynamics of the trend movement over a selected time period.
Price channel (price channel) is a space on the chart of the movement of a currency pair, limited by two lines. One of which characterizes the minimum price values, and the second the maximum.
The Forex price channel best characterizes market performance indicators such as volatility and trend direction, taking into account the selected time period.
Construction of a price channel.
The channel boundaries are usually the support and resistance lines that connect the most significant minimum and maximum points on the price chart.
In this case, the lines do not necessarily have to be drawn in parallel; the channel can narrow or, on the contrary, expand, which serves as a characteristic of the dynamism of the market.
In order to construct a support line, we select significant lows on the working time frame and connect them together.
We carry out the same action in relation to significant price highs. As a result, we get the price channel we need.
After this, one glance will be enough to tell in which direction the trend is moving.
Reverse price movements against the prevailing trend will be characterized as a Forex rollback , or a course correction.
This indicator is important when setting a stop loss order, which should be greater than the maximum correction. To build, you can also use the channel forex indicator , which will do everything for you automatically.
Trading strategies in the price channel.
There are a lot of strategies that allow you to make a profit after building a channel:
1. Breakout - this trading option is designed for the price to make a sharp movement and break through the support or resistance line.
Trading is carried out through pending orders, in the opposite direction from the trend, which will be triggered when the trend reverses.
You can familiarize yourself with one of the options for such trading in the article “ Level Breakout Strategy ”.
2. Taking into account rollbacks - in this case, trading can be carried out both in the direction of the trend and against it, but the second option is more risky and dangerous and is used mainly for scalping.
A trade is opened as soon as a price reversal occurs inside the channel and a new movement begins.
Read more about this strategy in “ Scalping in a price channel ”.
Moreover, the constructed channel can be used both to create trading strategies and simply to conduct technical analysis of a given section of the Forex market.