trendline channels strategy

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This trading strategy is one of my favourite trading strategies. Trend Channels are based on trendline strategy. Trend channels are very easy to use because they tell you exactly where to get in and get out of a trade. If channels are used properly they can make you a lot of money in a  short space of time.

In this tutorial you will learn what are trend channels, how to use them, where to place your stop loss, and your take profit target.

What is a trend channel

Trend channels are best described as two descending or ascending lines  that are parallel to each other. There are two types of trend channels

Ascending trend channel
Ascending trend channel is made up if 2 higher highs and 2 high lows as you can see from the example chart below.

This is how ascending trend channel looks like

how to trade trendline channels

How to draw ascending channel

To draw ascending trend channel you will need 2 minimum of higher highs and a minimum of two higher lows.

Descending trend channel

A descending channel is made from two lower highs and two lower lows. To draw descending you need a minimum of two lower highs and two Lowe lows.

This is how descending channel looks like

<span class='hiddenSpellError wpgc-spelling' style='background: #FFC0C0;'>trendline</span> channels falling channel

 

How to trade descending channel

Once you have drawn your channel, wait for the market price to touch your upper trendline for the 3rd time to sell or wait for the market price to touch  your lower trendline to buy.

For a buy trade, the price must touch your low trendline and close above it.

For a sell trade, the market price must touch the upper trendline  and close below it.

Stop loss

You can place your stop loss few pips outside the channel or just few pips away from the candlestick that touches the channel for both buy and sell.

If you buy or sell on the other side of the trend channel, the other side can be used as a take profit target. See the pictures below as an examples.

Descending channel

<span class='hiddenSpellError wpgc-spelling' style='background: #FFC0C0;'>trendline</span> channels

Notice how the price respect the channels? The price tend to reverse after touching a trendline.

Ascending trendline channel

<span class='hiddenSpellError wpgc-spelling' style='background: #FFC0C0;'>trendline</span> channels rising channel

Remember, channels are not a foolproof -they also get brokeust like other trading strategies.

Also, the failure of the price to reach the other side of the channel line usually is a signal that the channel may be broken.

I also suggest that you use reversal and indecision candlesticks   as confirmation to your entries.

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