Channel trading (10/7/07) CHF +100pips

December 12th, 2007 expert Posted in FOREX TRADING STRATEGIES and CONCEPTS, FOREX TRADING ENTRY STRATEGIES, FOREX TRADING EXIT STRATEGIES |

ONLINE FOREX TRADING CONCEPTS:  Channel Trading,  trendline violations entries,  Establishing the trend direction,  Exiting using targets,  Automated transactions

Currencies tend to trade in channels quite consistently. Much more than many traders realise. This is also supported by the Dominant Angle theory that the price channels downward and upwards between sets of trendlines that repeat the same angle. This is discussed under another topic.

There are many ways of establishing channels but drawing straight trendlines is the simplest and most efficient. One only need 3 reference points to draw a channel as illustrated on the accompanying chart. Once 2 strong pivot points (turning points 1 and 3) have been established an extended trendline is drawn joining the 2 pivot points. This establishes one of the channel lines. The next channel line is simply drawn by drawing a line parallel to the already established trendline that touches the turning point 2. You then have a channel. The great thing about this is that this technique can be used in trending and sideways trading markets.

Way to trade this is then to find an entry point that will allow you to trade from 3 pivot point to the project 4 pivot points. Once the 4 pivot point is reached you can then trade the 4 to 5 leg and so on until there is a strong breakout from the channel which normally means a trend change or the formation of a new channel. Nice simple and effective way of trading.

As can be seen on the chart a good channel was establish for the CHF which was trading in a stepping down fashion within a channel. We missed hooking the number 3 bounce off the upper trendline (which became a channel line) so we were looking for a reason to sell the CHF. The best we could find was a trendline joining the recent lows. We placed a trendline violation sell order just below this line which was activated.

As we were trading the 3 to 4 point channel move the target became to projected bounce at point 4. We placed an automatic limit order just short of this so that our transaction would be automatically closed when the price reached this level. Fortunately it did and 100 pips were banked on this deal.

Because this was an automated deal it was also an alert on our UK alert service. For more information on the Expert-4x US and UK alert services please go to www.expert-4x.com.

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