Channel trading is a crucial instrument in monitoring and defining support and resistance lines on the market. It enables traders to speculate and predict the high time to enter or exit trades. The possibility of having control over the risks is just as important.
Specific features of the channel
Considering an analytical approach, the channel can be defined as a chart between two parallel lines crossing resistance and support lines. The upper and lower lines connect the swing highs and lows, respectively.
This type of trading can be the best solution for short- and medium-term trading. Responsible traders do not apply it while making long-term investments. The most profitable option for this technique is stocking with volatility not close to the extremes. Low vitality predominantly means small channels and a modest income, while large channels possess more volatility.
To build a channel, at least four contact points are needed. Two lows form the lower line, and two connected highs form the upper line. The classification of channels consists of three types of channel:
Ascending channels – channels that are tilted up. They represent the bullish market trend as the price of the assets increases. The right choice for traders at this stage is to open a short position. Descending channels – channels are sloping downwards. It is also observed at this type of channel that the majority of highs and lows are lower. The most suitable move at this point is to open a long position and anticipate future increases.
These two types are regarded as trend channels because of the defined and stable direction of the price.
Horizontal – channels with horizontal trendlines. This channel is characterized by an equal series of highs and lows for some period of time. The tendency of traders at this stage leads to opening long as well as short.
Fintatech soft contains the following channel elements:
1. Trend Channel
2. Andrew’s Pitchfork
3. Error Channel
4. Raff Regression
5. Quadrant Lines
6. Tirone Levels
7. Speed Lines
8. Gann Fann
9. Trend Angle
Buying or Shorting the Channel
List of rules which are essential for entering long or long or short positions:
Sell long position or take a short position as soon as the price reaches the highest of the channel. Hold your existing trades if the price flows in the medium position of the channel.
Cover short position or take a long position as soon as the price reaches the bottom of the channel.
These rules will work on the condition that traders are aware of their exceptions:
Not initiate trades; wait for the new channel if the channel becomes intact.
Enter or exit near the extremes of the next channel when your current channel comes to an end because of price drift.
Trading the Channel
Although channels present a straightforward and functioning approach to trading, there are some key points or techniques every trader must be wise about in order to manage correctly their stop-loss and take-profit points, anticipate the right time, and the reliability of the trade.
Stop-loss and take-profit points form the built-in money management capability of the channel. Thus, to benefit, it is necessary to operate these points properly:
To set take-profit point at the top if you have obtained at the bottom of the channel. As not to experience significant differences in volatility, set a stop-loss point below the bottom of the channel.
To set take-profit point at the bottom of the channel as you have got a short position at the top. The right choice is setting the stop-loss point just above the top of the channel in order to hold space for volatility.
Reliability of the Trade
With the help of channel trading, it becomes possible to predict the success of the trade. This technique is called confirmation, the number at which the price is altered from one to another opposite side of the channel.
There are four major confirmation levels:
– 1-2: weak channel – is not reliable to trade at
– 3-4: adequate channel – possible to trade
– 5-6: strong channel – presents medium reliability
– 6+: powerful channel – shows maximum reliability
The other advantage of applying the channel trading technique is the opportunity to estimate the time that the trade takes in order to get to the selling point. It is possible to calculate it with channels by defining the duration of previous trades sessions and then calculating the average number applicable for future predictions.
However, the most likely can be reached by addressing the best professionals. Our software support scripting language gives you an opportunity to create custom strategies based on the description above.
If you are interested in the Fintatech Channel Trading elements, get in touch with our manager. We are open to cooperation.