WORKING POINTS ON CHANNEL TRADING STRATEGIES
Trading strategy is one of the cornerstones of trading. A trader without strategy turns into an ordinary person, haphazardly poking buttons in the terminal. Each strategy has its own characteristics.
THE ESSENCE OF CHANNEL STRATEGIES
The price of a pair in the foreign exchange market fluctuates within a certain corridor, which can be represented as a channel. The "walking" of prices in the channel is the main principle on which all channel trading strategies are built.
Trade in the price channel brings profit in the case of a clear definition of the channel in which the price moves. For this, a certain time interval is taken, and the levels to which the price reaches, but does not cross them, are determined on it. These levels are the upper and lower boundaries of the corridor. And this is the main problem for many traders - the proper construction of the price channel.
As a matter of fact, there is enough graphic design for trading, and the usual corridor on the chart is already the simplest trading strategy, which does not require additional tools for confirmation. Nevertheless, many traders consider it necessary to use a variety of ways to confirm the signal. It can be candle patterns, various level indicators, divergences, etc.
In the channel trading system, two scenarios are considered:
• the price broke through the channel;
• the price did not break the channel boundary.
In this case, each strategy has its own breakdown criteria and its own rules for opening positions. In addition, a very important role is played by the type of channel that is used for trading.
The most common types of channels are:
• channels constructed by Fibonacci levels;
• equidistant channels;
• channels using standard deviation;
• channels built on the principle of linear regression.
The real list is much larger. For example, a channel can be formed by moving averages, vertically shifted, etc.
ADVANTAGES OF CHANNEL STRATEGIES
The advantages of channel trading strategies include:
• low trading risks;
• simple rules, understanding of which will not be a problem for the beginner;
• high profitability.
However, like any other strategy, the channel strategy requires a strict adherence to the rules of opening positions and observing the management.
Trading in the channel trading strategy must adhere to a number of key points:
• The best timeframes for trading are M30 and older;
• positions open when bouncing from the edges of the channel;
• The channel is built in the direction of the trend: an ascending one - along two minima and one maximum, a downward one - on the contrary;
• the position is opened only after the price reaches the border of the channel;
• it is allowed to place a pending order outside the channel, in case it breaks through.
In many cases, the effectiveness of trading signals in a channel strategy depends on the stability of the channel. If there are signs of a trend change or end of the channel, then this strategy for trading is better not to apply.
If the price breaks the border of the channel and goes beyond it, then, in most cases, the price movement will be approximately equal to the width of the previous corridor. This gives the trader the opportunity to plan and open a deal on time.
The effectiveness of channel strategies is enhanced by using oscillators, with which you can determine price reversals. And also the truth of the corridor corridor breaking through.
To work on channel strategies, the channel can be built independently using extremes, or you can use the developed author's channel indicators.