23 July 2020
Trading may be considered a science. It always requires a set of different skills. There are tons of strategies that you can practice if you want to start trading. One of the most popular and easiest ways to trade is the Price Channel Pattern strategy.
What is the Price Channel?
The price channel is a pair of parallel lines that form a chart pattern for a stock or commodity. Depending on the prices, channels can be horizontal, ascending, or descending.
Price channels are often used by traders to estimate momentum. They can also use it to see the direction of a security’s price. The price channel pattern is really easy to identify. The chart has one upper line called resistance, and a lower line called channel support. These lines are called trendlines. Between these two lines is the price action.
What Elements are on a Price Channel?
The lines need to be wide enough if you want to trade in this type of pattern. If this is the case, you can buy at the channel support level (the lower line). After that, you can sell at the channel resistance level (the upper line) for profit.
To start trading with this method, you should be able to identify two higher highs and two higher lows. Once that’s done, you should draw the price channel by connecting both the highs and the lows. You must connect the highs and the lows with two parallel lines.
At some point, a channel breakout will occur. This can produce significant price movement in the direction of the breakout. This is known as a Price Channel Breakout.
Breakouts: Downward and Upward Patterns
To identify these breakouts, you will have to check the pattern in which the price rate is being drawn. If the price rate makes a series of higher highs followed by a series of higher lows, the pattern goes upwards. If it makes a series of lower lows, and then a series of lower highs, then it is a downward pattern.
There is a channel breakout when one of the highest highs or lower lows patterns breaks. This is the best time to start buying or selling. A buy or sell signal would be triggered every time there is a breakout.
How To Trade With the Price Channel
If you want to identify an upward price channel pattern, you should look for a swing in the highest high on the chart. If there are more than two higher highs not touching the upper trending line, be wary. That is the first warning that they will fail to trade within the boundaries of the channel patterns. This is a sign of price weakness, so you should keep an eye out for that.
If the pattern keeps getting lower, the price is likely to drop and break through the channel.
Tips to Trade With Price Channel
Just because it is most likely does not necessarily mean that it will happen. So please make sure that you receive the breakout confirmation signal.
This is one silly mistake that traders do and one of the worst. Always make sure that you receive confirmation of the breakout. You will never know if the price rate would bounce back in the last second.
You should wait until the price pattern goes lower until it forms a breakout candle. This is the perfect confirmation that the price is not bouncing back, at least not for now.
If you receive the confirmation and see the price rate getting lower and lower, you can start trading. Sell orders are triggered once the breakout candle is confirmed with the closing price. From there, you just have to determine where to take profits.
You should determine where to place your protective stop loss. You should place it in the swing high previous to the channel breakout.
This example is the one from sell trade, if you want to identify a buy trade, then use these same steps but in reverse. You just need to determine the lower highs and lower lows and so on.
If this is your plan and you know how to use it, you may have a bright future in trading.