As a general strategy in Forex, it is always a good idea toÂ follow the main trend of price movements.Â However, there are certain market situations in which there is not only a marked trend line that guides the movements of prices, but also it moves within a channel that determines the maximum and minimum as well.
The channels can be side, bullish or bearish.Â The lateral channels are not in principle of special interest, unless you want to use some specific strategy to tradeÂ them.Â It is always more attractive to trade trends than the phases in which the market moves sideways without a definite trend, so toÂ detect and take advantage of a bullish or bearish channelÂ will be much more profitable for our Forex trading.
What is a trend channel?
A channel is a zone of movement of the price delimited by two lines: the mainÂ trend line, which joins the rising minimums in case of a bullish trend or the decreasing maxima in the case of a bearish trend;Â And a line parallel to this one that joins the rising maxima in case of a bullish trend and the decreasing minimums in the case of a downward trend.
The price will always move within that channel until it breaks, and it is precisely this movement that we must take advantage of in our trades.
How do you trade a channel?
A channel provides a multitude of information relevant to our trade: it gives us points of entry or collection of benefits whenever the price touches one of the two lines of the channel, and also helps us to place a stop loss outside the channel.
The channels in the real market are practically never as perfect as the theoretical drawings that represent them.Â It is possible that perfect steps are not always drawn from the bottom to the top of the channel, or that the parallel line is not always touched (the trend line is usually more respected).Â You have to know how to play with this feature.
In order to tradeÂ a channel, you can tradeÂ in favor of the channel trend, opening positions whenever the price touches the trend line, or trading counter-trend each time the price touches the parallel line that has been drawn.Â As soon as the price approaches the opposite line, we must close the tradeÂ at least partially.Â ButÂ at every touch of one end of the channelÂ there must be an outline of what action should be taken at that point.
It is very interesting also toÂ trade the canal breaksÂ , since they are usually accompanied by movements that can accumulate a good handful of pips.Â For this, it is interesting to trade theÂ channels that are contracting, expecting a break and trend change thereof.Â Normally, the breakage of a channel is always accompanied by a retry of the price that that channel uses to support its new movement, and that is precisely the optimum point of entry. Happy Trading.