Forex Forums | ForexLasers.com


Go Back   Forex Lasers Forum > FOREX TRAINING > Forex Articles


Breakout Trades and the Power of Price Channels

Forex Articles


Reply
 
LinkBack Thread Tools Search this Thread
  #1  
Old 01-09-2017, 09:47
Moderator
 
Join Date: Mar 2014
Posts: 979
Default Breakout Trades and the Power of Price Channels

When Price Channels (sometimes referred to as Donchian Channels) are placed on a chart, they identify the high and the low price at which the pair traded over a specified period of time. The Channels on the Daily chart below are set to 20 periods so they would represent the high and the low at which the pair traded over the previous 20 days.

As such, they can be used quite effectively to visually identify levels of Support and Resistance on a chart. The channels can be used by “breakout” traders to identify entry levels. This would occur when price “breaks” below support in a downtrend or above resistance in an uptrend.

When the breakout occurs, this can be taken as an entry signal as the potential exists for price to continue to move in that direction for a period of time.

Let’s take a look at the example below of Price Channels on a Daily chart…

As noted on the chart, the lower channel line represents support while the upper channel line represents resistance.

As with most every strategy, the first step is to determine the direction that we should trade the pair. In the case of the EURCAD pair we know we want to look for opportunities to short the pair for the following reasons: 1) Price Action is below the 200 SMA and is pulling away from it; 2) at the time of this writing the EUR is weaker than the CAD, and 3) price has been making successively lower highs on this Daily chart since the end of February.

Now that we have determined the direction to trade the pair, we can look to a lower time frame chart to “fine tune” our entry. For our purposes on this pair, I prefer the 1 hour chart as we may be close to an entry.

When moving down to an intra-day chart (anything below a Daily) we will change the indicator to 55 periods. We do this to slow down the indicator a bit as we have moved to a faster, lower time frame chart.

If/when price breaks below the lower channel line at 1.2941 a trader could sell the pair. The stop would be placed above the upper channel line at 1.3041. As can be seen, the price channels have provided us with our “breakout” entry along with our stop placement.

To manage the trade as it progresses, a trader would manually trail the stop by keeping it just above the upper channel line. The trade would be closed when price action retraces to the point that it intersects the upper channel line and the stop.



Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are On


Similar Threads
Thread Thread Starter Forum Replies Last Post
Losing Trades, Winning Trades ForexArticles Forex Articles 1 23-06-2016 11:36
Trading Price Channels For Trade Triggers ForexArticles Forex Articles 0 25-11-2015 22:35
How to make template Open price & close price Fxjustify General MT4 / MT5 discussion 2 15-09-2015 08:04
What are Forex channels? ForexArticles Forex Articles 1 01-06-2015 17:07
Fade the Breakout ForexArticles Forex Articles 0 17-04-2015 11:07


All times are GMT. The time now is 04:03.


Powered by vBulletin® Version 3.8.10
Copyright ©2000 - 2020, vBulletin Solutions, Inc.