Do you often use channels (price channels, indicator channels ...) in trading? Currently, there are many types of channels, each with a different calculation such as moving average channel (channel of MA lines), price model channels (for example trendline), linear regression channel ...

The article is referenced from the Tradingsetupsreview page and only goes into the common point of trading with the price channel. Specifically, the following 4 ways are the most popular way to trade with the price channel.


FIND A TREND AND TRADE IT WITH A PRICE CHANNEL

This is the trend-based trading method. To use this method, you must draw a trendline to form a price channel and the price channel should have a large "slope" to show that the trend is strong.


We'll go into the example above:
  1. First, we draw a trendline based on 2 swing highs that have just formed. The current trendline just has a very good downward slope, showing a strong downtrend.
  2. Then, we draw a line parallel to the original trendline and place this new trendline through the swing low to complete the price channel pattern.
  3. The price then recovered to test the trendline. At the same time, this tested area was also the resistance area that used to be a support zone. Enter a sell order when the price forms a bearish insider bar pattern.
  4. The price channel gives us the perfect take profit point with this trade order.
We can completely trade according to the trend based on the trendline only. However, when combined with a channel (price channel) will give us better profit taking points.


Trade against the trend always has a fairly low probability of winning so we need to choose carefully, only trade the best setups. To find the best setup, you need to follow the following rules:
  • Make sure the channel is going against the main trend of the larger timeframe. It is easy to understand that you are looking for a reversal of the price correction, so you are trading in a trendy way with a large trend.
  • Look for reversal points on channels with steep slopes. The steeper the channel is, the less stable it is.
  • Find strong rejection when the price breaks out of the channel (for example, the outside bar pattern as shown in the illustration).

TRADE SIDEWAYS WITH PRICE CHANNEL

Price channel is not necessarily used only when trading according to the trend. They are also useful for defining sideways markets.

With the price channel going flat, we will sell when the price reaches the top of the channel and buy when the price hits the bottom of the channel.

The Gimmee bar pattern in the illustration below gives a very good example when trading in a sideways market. However, when using the Gimme bar, we will not use the trendline, but use Bollinger Bands as a Price Channel.




TRADING PRICE BREAKOUT WITH CHANNELS

This is the trade with the most popular channel, so I leave it last.

The common problem is that trading breakout prices are often very easy to fail. Why? Since this moment is the most sensitive time in the market, most traders buy when the price is low and sell when the price is high. When the price breaks out, the price is usually too high (uptrend) or too low (downtrend), so if you trade breakout, you often experience "trade alone", which makes the price after breaking the threshold. breakout failure is very common.

However, saying so does not mean that the trading breakout is completely impossible. It is important that you choose what type of breakout to trade. Let's see the 2 rules below:
  • Pay attention to the price volume (trading volume). A successful breakout price is often when the market volume is large (simply the more traders, the higher the success rate, that's all).
  • Note that breakout candles have outstanding magnitude compared to the average magnitude of the previous candles.

CONCLUDE

For some traders, having multiple options when trading channels can be a minus because they will see entry points everywhere. Sometimes they trade a round of price retrieval, sometimes they trade the reverse trend, try to find a reversal with the channel, and sometimes they will trade breakout with the channel. That will lead to overtrading.

One simple solution is that you should only draw channels based on the main trend (or the trend of large timeframes) and only trade on this trend.

With indicator-based channels, you should adjust the parameters so that the indicator has a larger period to allow accurate calculation of the main trend when we trade.