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