Channel trading strategy is a classic form of trading in both Forex and binary options. This is a trend trading strategy, so accuracy and safety are very high. Today, I will present all of you about the Channel pattern and how to trade with it in the most complete and detailed way.
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What is a Channel pattern?
The Channel pattern is a development of price following the trend which consists of two parallel support and resistance levels. Prices will fluctuate and create trends along the corridor created by these 2 levels.
This pattern ends when the price breaks out of either the resistance or support and creates a new trend. The breakout direction is often in the opposite direction to the direction of the pattern.
Two common types of Channel patterns
With 2 parallel and horizontal resistance and support levels, this is a rectangular price pattern that I will introduce later. In this article, we will only focus on the two types of Channel Up and Channel Down patterns.
Channel Up
This Channel pattern type has 2 parallel and upward levels of Resistance and Support. The breakout of this pattern will usually be at the support. After the breakout, the price will reverse down. In some cases, the price may retest this support. If you don’t know what retest is, please review this article: What is Retest? Why is it so magical?
A practical example of a Channel Up pattern.
Channel Down
In contrast to the Channel Up pattern, we have the Channel Down pattern with 2 parallel and downward levels of resistance and support. After creating this pattern, the price usually breaks out upwards (resistance breakout) and goes up. It is possible for a strong uptrend to appear after this breakout.
A practical example of a Channel Down pattern.
Characteristics of this pattern
+ The Channel pattern needs at least 2 peaks to form a resistance and 2 troughs to form a support.
+ When trading, you should only open UP order in a Channel Up and DOWN orders in a Channel Down.
How to trade effectively with the Channel pattern
Here, I will guide you to use this Channel pattern in both Forex and binary options trading. All will be presented in great detail so that you can optimize your profits as well as minimize your risk when opening orders with this pattern.
Trade Forex effectively with the Channel pattern
In Forex, there are 2 types of trading using the Channel pattern: trading within the price channel and trading as per the breakout of the pattern.
With this type of trading, you should remember clearly: In a Channel Up, only open UP orders. Conversely, in Channel Down, you can only open DOWN orders.
How to open an order is as follows.
For a Channel Up:
+ Entry Point: When the price hits the support of the price channel.
+ Stop-Loss: At the previous position where the price touched the support.
+ Take-Profit: When the price hits the resistance.
Please see the image below to better understand how to open orders with the Channel Up.
If the previous order wins, the stop-loss of the following order will be the entry point of the previous order.
For a Channel Down:
When the price is in a Channel Down, you open an order as follows.
+ Entry Point: When the price hits the resistance.
+ Stop-Loss: At the previous position where the price touched the resistance.
+ Take-Profit: When the price hits the support.
If the previous order wins, the stop-loss of the following order will be the entry point of the previous order.
Trade as per the breakout
The trading strategy is based on the breakout point of the price channel. This is a very good signal of a trend reversal. You open an order as follows.
For a Channel Up:
+ Entry Point: When the candlestick breaks out of the support.
+ Stop-Loss: At the previous position where the price touched the resistance.
+ Take-Profit: When price re-touches the support levels it creates within the pattern.
For a Channel Down:
+ Entry Point: When the candlestick breaks out of the resistance.
+ Stop-Loss: At the previous position where the price touched the support.
+ Take-Profit: When price re-touches the resistance levels it creates within the pattern.
Trade binary options effectively with the Channel pattern
In binary options trading, opening reversal orders when the price is within the price channel is the safest and most effective strategy. Please note that you should open orders with a long expiration time to avoid fake price signals.
Requirements: Open an order with a long expiration time (if you are using a 5-minute candlestick chart, the expiration time will be 45-60 minutes).
You open an order in binary options trading as follows:
+ Open an UP order when the price touches the support of the pattern.
+ Open a DOWN order when the price touches the resistance of the pattern.
The last word
The article is a bit long. However, I have covered everything I know when trading with price channels. Thank you for reading. Do you have any tips for trading with price channels? Please help me improve.
In the article, I used images taken from the Olymp Trade trading platform. This is a trading platform with 2 trading types including Forex and binary options (FIXED TIME TRADES). It is very convenient for you to experience the Channel pattern. If you do not have an Olymp Trade account, please register one by clicking on the box below. Goodbye and wish you successful transactions.
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