The principle of the channel strategy.
This method is based on the visualization of price dynamics present in the moment in the Forex market. As we all know, in all financial markets trend can be of three types: upward trend , the downtrend and flat.
Channel strategy uses only two graphic lines built in the terminal. To start, select a currency pair and time period for which you want to trade. Customizable graphic "candlestick", so the most convenient, uncomplicated, and proceeds to build the lines of:
- If you see that the market dynamics of the rising, the trend is bullish, we first construct the bottom line of the price channel on the low shadows of candles. It is advisable in this case to find as many points on which you can draw a line. After that, building a parallel line, the top in this case, the maximum. It may relate to only one maximum point. But the more points it is, the better the signal to trade.
- If the market we see a downward trend, all built the same way, but in reverse. First, the top line on the high, and then parallel to the bottom.
- If the market prevails flat, first build the line, which runs the largest number of extrema.
To trade in this method is so simple that anyone can do that to the beginner. Once defined price channel, follow the rules:
- Determine the width of the price band, the figure needed for further work (see figure below).
- Trade position open only inward price channel.
- As soon as the price went up to the boundary of the corridor, to any of the lines, open a trading position. Price does not always reach the line itself, so the order can be opened a little earlier (no earlier than 10% of the width of the channel).
- The position is closed when the price reaches the opposite line. But as the price does not always reach exactly to the line, then you can close the time (at least 10% of the width of the channel).
- Stop loss should be put outside the price band. At a distance of not less than 20% of the total bandwidth. This figure may vary depending on the activity of the market, but not more than 40%, as pay damages in further work on the strategy will be difficult.
- If you work for a stop loss and price went beyond the corridor, then you need to open the opposite order. In most cases, after breaking through the range, the price goes to almost the same distance as the width of the price channel.
- After breaking the price band, the new building and are working on the same rules.
Channel strategy was widely used among traders of different levels of professionalism for its simplicity, reliability, and visualization. Still be noted one significant advantage - universality. Channel strategy can be applied not only to the mathematical method of technical analysis (using indicators and oscillators), but also with fundamental analysis . And combined with other techniques and strategies popular in the market Forex , and their own development.