What is the price channel?

Probably every trader in the Forex market at least once faced with such a concept as “price channel”. Many traders practice such trading, and those who want to start should know exactly what they need and how to build them. Let’s look at what types of channels are and how to build them.

Price channel is a specified range for trading, within which price fluctuations occur, for a certain period of time. In fact, it is a “corridor” with borders in the form of a resistance line (upper border) and a support line (lower border) on the price chart.

Trade channels, similar to trends, are divided into three types:

• Upward Channel

• Downward Channel

Sideways Channel

How to build a price channel?

To build, for example, an “upward” price channel, you will first need to determine exactly where the trend will start on the price chart. After that, draw a trend line, based on the two local consecutive increasing points of minimum (1) and (2), or as they are called – reference points. The resulting line is the main line on the price chart. The next step will be the second trend line, which is parallel to the existing support line. It is similarly carried out through the highest point of the selected area of the graph (3), but within the local maximum, which is located between the two supports.

To build a “downward price channel” use the same method as in the case of upward, but Vice versa. This is due to the nature of the trend, namely the trajectory of its movement. For the downlink, the main line will go through the highs, while the trend line will go through the local minimum.

 

торговый-канал-точки-максимума-минимума

 

In case of “flat”, it is characterized as a the price fluctuation between the levels of highs and lows, therefore their census is not carried out. Ask: and how to understand the flat or not? The answer is simple: the price should touch the support and resistance levels at least twice each. If this happened, then congratulations, your price is moving in sideways channel.

A little note: price channels are distinguished as confirmed (if the price touched more than twice its borders) and unconfirmed (if there are fewer touches).

How the trading in price channel is carried out?

It is not enough to determine the boundaries of the channel by the trend lines to start trading. First of all, you will need to add a few additional lines to the price chart to the existing channel.

The first additional line should be located at the very center (50%) of the channel range, that is, at an equal distance from the support line and the resistance line.

The following two additional lines should similarly be placed within the channel at a distance of 10% of the width, parallel to its borders.

Trading is carried out inside the channel from the resistance and support lines. When trading in an upward channel, you should buy from the lower border, and sell from the upper border. In the case of a downlink, the opposite is true for sales and purchases. To minimize risks, the profit should be fixed on the reverse zone between the additional line (10%) and the channel boundary. Let’s look at a small example for a better understanding:

 

 

 

Why do we use the 10% zone to minimize risks? Because the nature of market events is very, very unpredictable, the trader can only assume about how the price will behave in the future. Consequently, it is possible to minimize the risks in case of closing the deal before the price touches the border of the corridor. In fact, the trader gives a part of his potential profit to the market, but minimizes the risk of losing the entire amount of the opened deal.

Line 50% is a strong level of support/resistance from which it is similarly possible to enter the deal. But we should not lose vigilance trading from this line. Here it is necessary to be careful and enter into the transaction strictly in the direction of the trend.

With regards to stop / loss orders, everyone chooses, there are no special comments here, because the decision is made relying on the Deposit, money, volatility of the currency pair and the time frame on which the trader trades. A clean stop/loss orders for the previous significant extreme in the market. But if the trader, especially the beginner, is hard or you need to use them, then it is possible to use the signals to enter/exit the position.

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“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

Trade with Price Channels
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