Forex Trading Strategies With Channels
Forex trading strategies don’t need to be complicated. The more complicated, the more confusing, the more difficult it is to be able to make profit consistently. Well, this time we will discuss how to trade on the basis of a price channel strategy.
Channels can be a pretty good trading strategy. One reason why channel usage becomes quite popular is because it is easy to recognize and understand compared to other price patterns . The strategy applied is also simple.
How to recognize the channel ?
All you need to know before going further, of course, is to recognize the channel itself. In EduSpot, the channel was alluded to, even though the strategy for its use in detail was not discussed.
Actually it’s easy to recognize the channel. You simply recognize a series of peaks and valleys that are getting higher, or lower. The peaks and valleys function as support and resistance. To further facilitate understanding, try to look at the picture below.
Pay attention to the ever increasing green (peak) and red (valley) circles.The resistance line (the top) is formed by connecting two peaks, while the support line (the bottom) is formed by connecting two valleys. These two lines (support and resistance lines) become channels. In the example above, because the direction is up, it is called up channel or ascending channel.
What is the trading strategy?
Once you can recognize the channel, then you can plan where to open a Buy or Sell position.
You certainly already know that in principle buy positions should be opened in the support area, otherwise short positions should be opened in the resistance area. Right?
Well, on the channel you can already know the support and resistance areas; namely the channel lines themselves. Thus, you can look for signals to open long positions when the price is in the support line area (bottom) or look for sell signals when the price is in the resistance area (upper line).
To determine the target and stop-loss, you can also take advantage of the support and resistance line area. If you open a buy position, the target should be placed in the area of the resistance line. Conversely, if you open a short position, place the target in the support area.
As a stop-loss, also take advantage of the support and resistance areas.For long positions, place a stop-loss below the support line area. In contrast to short positions, of course the resistance line is the benchmark.
To make it easier to understand the explanation above, it’s a good idea to pay attention to the following picture.
You should open a position in the direction of the trend that goes. That is, open a Buy position when the price is in an uptrend, instead sell if the price is in a downtrend.
For downtrend conditions, the strategy set up that you can apply is as follows:
The support and resistance area is only the “reference” area to open buy or sell positions. To find an “entry signal”, you can use technical indicators such as stochastic or CCI as a signal to sell or buy. Or, you can also use the candlestick pattern as a signal.
How, it’s quite simple right ? As stated at the beginning of this article: forex trading strategies need not be complicated.