A Channel is formed when we draw a trendline and then a line parallel to the trendline with most of the price action if not all falling between the two lines. By scanning through a few charts, you will find that it is easy to identify channels. Channels occur frequently.

However, currencies rarely stay in a narrow range for long and have a tendency to breakout from a tight range and develop a strong trend in the market. Important economic news releases can act as a trigger for a breakout.

Currencies start trading in narrow ranges before the announcement of important economic news release as well as before the start of an important trading session like the European or the US market session.

You can use this channel breakout trading strategy on 5 minutes, 15 minutes, 30 minutes, 60 minutes and other intraday charts. The best time to trade channel breakouts is on an important economic news release.

When the economic news release is made, price action will breakout in either the up or down direction. In case of a breakout in the up direction, enter long. Place the stop loss 10 pips below the upper channel line.

Similarly, enter short when the price action breaks below the lower channel line with a stop loss placed just above the lower channel line. Use a trailing stop as the price moves in your favor.

You can also enter two entry order, one long and other short 10 pips above and below the two channel lines prior to some major economic news release.

If the breakout takes place in the upper direction, the entry order to go long will be triggered. Immediately place a stop loss immediately 10 pips below the upper channel line and take profit at double the channel range or use a trailing stop if it becomes an extensive upper move.

On the other hand, if the breakout is on the down direction, your short entry order will be triggered. Place a stop loss 10 pips above the lower channel line. If the market move in the down direction develops into a major move, use a trailing stop.

Mr. Ahmad Hassam has done Masters from Harvard University. Try these Forex Signals by two top gun traders in a friendly competition. Learn this powerful Fibonacci Retracement method FREE that pulls 500+ pips per trade.

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Filed under: Currency Trading

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