Channel Breakout with Awesome

A channel occurs when the price oscillates between two horizontal lines. This can also be called a range bound market. When we are in a channel, it’s not easy to know if prices will break the channel to the upside or the downside. What we know for sure is that once the price breaks one way or the other, the movement will probably be strong. The best way to find out if prices will move up or down is to analyse the Awesome indicator.

The Rules:

We will enter on the breakouts and breakdowns of the channel confirmed by the Awesome indicator, and we will have a 20 pips stop loss. We will buy the currency pair 1 pip above the higher value of the channel, or short sell the currency pair 1 pip below the lower value of the channel. We will exit the trade if our stop loss is reached or if the Awesome indicator gives us an exit signal. When we are in a long position, an exit signal occurs when the Awesome indicator is above the centerline (0) and ticks down. It is easy to see when that happens since the Awesome

indicator turns red on downticks. If we are in a short position, once the Awesome indicator is

below its centerline (0) and turns green, we will exit the trade. We will also use the Awesome indicator to confirm our entry orders. This strategy works virtually in any timeframe and with any currency pair of your choice.

Let’s see some real trades.

Entry: Buy GBP/USD at 1.7401

Stop Loss: 1.7381

Exit: 1.7472

Profit: 71 pips

In this chart, we have a clear channel. We will enter on the long side when the Awesome indicator signals that the price is going to move up. This happens when the indicator is below the centerline – the zero line, or if the Awesome indicator is at a higher value than it was at the last high. In this chart, at 8 AM, the GBP/USD made a false breakdown. This breakdown wasn’t a trade, because the Awesome indicator wasn’t confirming the move. If you check the chart carefully, you will notice that, at this hour, the indicator was not only below the centerline (so a reversal could be near), as it wasn’t below the previous bottom. So, if the Awesome indicator doesn’t confirm the trade, that means that you have no trade. Around 10 AM you can see a clear trade. The Awesome indicator is above its centerline and it is above the previous high. So, it’s confirming the channel breakout. Following the rules, we will enter a buy order at 1.7401. We will also place a stop loss order 20 pips below the price at which we have entered the trade. After entering the trade, you need to focus especially on the Awesome indicator, so that we can exit this trade at the best price. While the price is rising, the Awesome indicator is also rising, which is very positive. It means that you are

on the right side of the trade. Once the indicator gives a downtick – when it changes from green to red –, it is time to exit the position. Take your profits and look for another trade. In this case, the trade was closed at 1.7472 with 71 pips profit. Even if you were distracted and shorted GBP/USD around 8 AM (violating the Awesome indicator confirmation rule), you would end the day with a good profit. In that case you would have lost 20 pips on the first trade (the stop loss would have been reached) and won 71 pips on the second trade. Winning 51 pips in a day where you made some mistakes is very good. If you are trading just one currency pair, you would end the day with $510 profit. That’s because you followed the risk reward rules, and stayed alert even after a loss. That’s extremely important in trading. If after a day like this one you lose money, that means you violated several important rules. In that case, you need to stop trading, and read your system rules again. Check out what you have done wrong, so that you don’t make the same mistake(s) again.

Entry: Buy EUR/USD at 1.1465

Stop Loss: 1.1445

Exit: 1.1518

Profit: 53 pips

We are now looking at the EUR/USD 1 hour chart. By looking at the Awesome indicator, you can see that it is confirming the trade before the breakout at 1.1465 occurs. So, we will place a buy order at 1.1465 – on the breakout of the higher channel line. We will also insert a stop loss order 20 pips below our entry price. When the Awesome indicator turns red, this means that the trend is over; it is time to get out. This happened at 1.1518. So, we closed this trade with 53 pips profit. Notice that after our exit, the price kept running and reached 1.1600! This is a little frustrating. The Awesome indicator is a great tool to maximize your trades. Sometimes it doesn’t work so well but most of the times it works. If in this specific trade, the Awesome indicator wasn’t able to maximize the trade, and you won 53 pips, that wasn’t bad at all. You won’t get broke by taking profits like these.

Entry: Short EUR/USD at 1.0808

Stop Loss: 1.0828

Exit: 1.0735

Profit: 73 pips

We are now going to see some short sell examples using this strategy. In this EUR/USD 1 hour chart, at point 1, there has been a false breakout of the channel. The Awesome indicator was above its centerline, so a reversal could be near. Besides that, the Awesome indicator was way below the previous high reached by this same indicator. If the price is at the same value or higher, and the Awesome indicator is at a lower value, that means that there is a good chance that this trend will be weak or even reverse. So, the Awesome indicator was not only telling us to stay out of that trade, as it was even telling us that this breakout would be a false one. Around 3 PM prices made a breakdown. The Awesome indicator was above its centerline; so, it was confirming the trade. The short sell order was entered at 1.0808 and the stop loss was placed 20 pips above our entry, at 1.0828. After entering the trade, we have to continue monitoring the Awesome indicator to see when it tells us to exit the trade. This happens at 1.0735, when the indicator turns green. This means that the trend is probably over. It is time to exit the trade with 73 pips profit.

Entry: Short EUR/USD at 1.1818

Stop Loss: 1.1838

Exit: 1.1704

Profit: 114 pips

In this chart, we have a channel formation at the top. If we take a look at the Awesome indicator, we can see that it is above the centerline and falling. So, it is time to place a short sell order at 1.1818, just below the lower horizontal line. We will also place our protective stop loss 20 pips above the entry price. As prices come in our favour, we will closely observe the behaviour of the Awesome indicator to see when it tells us to exit the trade. This happens at 1.1704, where the indicator is below the centerline and turns green. We made 114 pips on this trade. Trades like this one remember us why we always need to follow our rules. If you have a good trading system or a good strategy, just follow it.