Online Forex Trading: Channel trading introduction

From experienced gained over the years the best Forex traders are retracement traders. These traders are looking for areas where the price move in one direction is weakening or loosing momentum and then they trade directly against the short term trend that the price has been on believing that the price will retrace on an even stronger trend in the opposite direction. They are therefore “with the trend” traders but use an against the trend method of entering.

There are a number of ways to trade this way but one on the most consistent ways that work reasonably well in a trending and trading market is channel trading. Channel trading requires the trader to establish boundaries which contain between 85% and 95% of the historic price movement. By definition then it is only 15% of the time that the price reaches close to these boundaries and they therefore present high probability trading areas.

There are a few way of determining the trading channels:-

• To use straight trendlines lines to determine the channels.
• To use envelopes around a moving average.
• To use Bollinger bands that take into account the market volatility.

Each of these methods will be discussed on separate pages as they require specific setting up methodologies.

In general the following guidelines apply to channel trading.

• Try to use channel trading in a sideways trading market where the channels are more or less horizontal
• When the channels or both pointing in the same direction either upwards or downwards there is a good chance that you are in a trending market. Only take trades that are bounces off the channel boundaries that are in the direction of the trend.
  

View an practical application of this concept by clicking here-> Channel Trading