The Channel for
trading is one of the most reliable chart patterns. Many
traders use this pattern for trading. The pattern is formed by two
parallel support and resistance lines. It is also one of the easily
identified patterns, which makes it ideal for beginners. This is the
pattern most of your trading profits will come from.
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| Ideal channels for trading |
I will focus only on
Ascending and Descending channels when trading. Horizontal
channels are trickier to trade and are more often misinterpreted. I
will now teach you the most profitable and least risky method of
trading the channel:
The Pullback
This type of entry is
designed especially for beginners at trading, as it provides a strong
and objective entry point. The steps to trading it are the following:
1. After channel is
identified, wait for its breakout – price breaking out of one
trend line.
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| The break down: channel is identified and price breaks its Support trendline |
3. Wait for trend to be confirmed
(Confirmations of pullbacks).
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| Price pulls back to the Support trendline |
3. Wait for trend to be confirmed
(Confirmations of pullbacks).
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| Short trade is confirmed – candle is below the low of his previous candle |
4. After trade is confirmed, calculate
stop loss in the following way:
For short trades: Stop Loss is 1
pip above the highest high of 3 last candles.
For long trades: Stop Loss is 1
pip below the lowest low of 3 last candles.
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| Stop Loss is placed 1 pip above highest high |
5. Calculate Take Profit: measure the
channel size, and subtract this amount from the breakout place.
Channel size is defined the distance between its Resistance
trendline and its Support trendline. It is illustrated in
the next chart.
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| Target for breakout is measured |
6. If the Take Profit divided by Stop
Loss is less than 1.5, do not trade. This is called the Risk:Reward
ratio.
7. Enter, set take profit.
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