Time for more technical education: here we are with some channels definitions and tips. Hope you enjoy it!

A channel is a figure usually of high reliability, formed by two parallel trend lines at it borders. One connects the price highs, the other the price lows, and in between, there is a zone where price use to stay till broke. Both trend lines, upper and lower act as support and resistance.

There are different kind of channels, but mostly work the same way. Let’s see the a practical example of each one:

Horizontal Channel:

It can be find either in up or down trends. It doesn’t mean a change of the previous trend, only a rest in the dominant trend, but usually the break is produced in the same way, previous trend was moving.

 Bullish channel:

For itself, shows us the major trend. It doesn’t mean a change of that trend, until is broke down.

And of course, bearish ones are exactly the same but with trend going the opposite way. Regarding bullish and bearish channels, remembertThere is not a fixed number of times price touch channels lines, but is important to know, that we need at least 4 points (meaning two maximum and two minimums) to CONFIRM the formation.

For all cases, target is calculated measuring the distance between both trend lines, and projecting that value the way the broke is produced; that could be a minimum target price, where currencies will try to go.

Always remember, both lines must be parallel; different angles will lead as to misleading conclusions.

 Practical trade with channels

Channels are useful to trade, because they show us certain points where reactions should start. When drawn properly, it can assist us to identify areas of support or resistance (determinate by the floor and the roof of the channel). Is a very valuable tool, because once
a channel is defined we can see many triggers inside it

But first of all, trading with channels gives us a great strategy, because for itself we have a stop loss defined (maximum loss to afford), and a reliable price target to set the take profit. Practically, once the price touch the bottom, or floor of the channel, there are good chances that, once confirmed the reversion, will try to reach the top or roof of that channel. In case we choose to wait for a confirmation (what I recommend) we can draw a smaller trend line inside the channel, and once this line is broken, we have a signal that price will try to reach the opposite band of the channel. For this strategy, we have to always remind that if price runs off any extreme of the channel, the strategy loose its efficiency and if we trade properly, then we are out of the market by the stop or the limit order. The other possible way to trade channels, is by waiting for the break, that would happen eventually: once price action breaks any of both lines, and confirm with a candle opening the break, we have good chances to see the height of the channel repeated out of it. From my experience, I found out Japanese Yen crosses are the ones that respect more this kind of figures.