Advanced channel trading strategy using price action confirmation signal
Trading the channel is very much profitable in the forex industry. Professional traders use the “Channel Trading System” to trade in the direction of the trend. A channel is very much similar to that of a trend line. It contains two parallel lines with at least three connecting points. Some traders tend to draw ascending and descending trading channel by forcing the point to join with the parallel trend line. It’s imperative that every single point is joined smoothly while drawing the channel. Since we are taking about advanced channel trading strategy we will be taking our trade entry in the direction the trade in the third time. In order to draw the valid channel, we will use “two connecting points” so that we can trade the third point in the market.
The Professional trader uses the channels resistance for selling the pair and buys at the channel support. In the above figure a nice “descending channel” is drawn in the EURJPY pair. Traders wait patiently for the price to reach the channel resistance for the third time. After the price hit the channel resistance for the third time, traders wait for price action confirmation signal to enter the market. A nice “bearish pin bar” is formed at the above channel resistance which triggers the short entry of the traders.
Professional traders use tight stop loss while trading the channel support and resistance level. In general, they set their stop loss just above the “Price Action Confirmation Candlestick Pattern” .Setting the take profit level is a bit tricky in the advanced channel trading strategy. The trader uses the partial profit booking method in this strategy. Once the pair forms a bearish price action confirmation signal traders wait patiently for the market to make the decisive move towards the major key support level. In the first support level, traders book 50% of their running profit and keep their remaining trade running. They close the rest of the trade once the market hit the major support level of the channel floor.
Most of the time price tends to respect the channel support and resistance level for “consecutive 6 to 7 times”. Professional traders of fibogroup.eu only use the 3rd and 4th times to trade the channel support and resistance level since the more it touches the channel level the more likely it’s going to the breakout. Many professional traders use the trailing stop loss feature to trade the channel for the 7th time so that they can ride the breakout of the pair in the direction of the trend. Research and studies show that almost “90%” of the time the price breaks the channel in the direction of the prevailing trend. Though the channel trading strategy is very profitable in the forex market its imperative that traders use proper stop loss and “money management rules” in order to avoid unexpected capital loss. Many professional traders give advice to the new traders to stick to 2% risk management rule until they are fully comfortable with their trading strategy.