HOW TO TRADE CHANNELS
What is a channel? And How Do You Trade A Channel? This section is about that.
The path price follows and the area enclosed within it is called the price channel. The fundamental principle of how a channel form is based on support and resistance.
Why price does that, I don’t know… but consider it as supply and demand at work. There are 3 major types of channels:
1. the uptrend channel,
2. the downtrend channel and
3. the sideways/horizontal channel.
But with sideways/horizontal channels, you can actually start trading the setup at point #2 which can be both a resistance or support level based on the fact that a prior resistance or support level is already visible and you should expect price to bounce from those levels. Look for reversal candlesticks to buy or sell when you see such setups happening.
Here Are Some General Rules For Trading Channels
1. If you buy or sell on the other side of the channel, you wait for price to reach the other end of the channel to take profit or exit the trade.
2. Place your stop loss on just outside the channel or just above the high of the candlestick (for a sell order) or just below the low of the candlestick (for a buy order) that touched the channel and shows signs of rejection. This candlestick can also be a reversal candlestick.
3. You may also decide to take half the profits off as price is in the middle of the channel for a profitable trade.
There’s a difference between chart patterns and candlestick patterns. Chart patterns are not candlestick patterns and candlestick patterns are not chart patterns:
• Chart patterns are geometric shapes found in the price data that can help a trader understand the price action, as well make predictions about where the price is likely to go.
• Candlestick patterns on the other hand can involve only one single candlestick or a group of candlestick which have formed one-after-the other in regard to how they form in relation to one another in terms of their body length, opening and closing prices, wicks(or shadows) etc.
Not knowing what chart patterns are forming can be a costly mistake. If you are like that, this is your opportunity to get back on track.
Why costly mistake? Because you are completely unaware of what is forming on the charts and you end up taking a trade that is not in line with what the chart pattern is signalling or telling you!
These are the 9 chart patterns you will learn about today:
1. Triangle chart patterns-symmetrical, ascending and descending (3 patterns)
2. Head and shoulders and Inverse Head and Shoulders (2 patterns)
3. Double Bottom and Double Top (2 patterns)
4. Tripple Bottom and Tripple Top (2 patterns)
But first up, I am going to talk about triangle chart patterns.
Now, lets starts with the symmetrical triangle pattern first.
Is A Symmetrical Triangle Bullish Or Bearish Chart Pattern?
The Symmetrical triangle chart pattern is a continuation pattern therefore it can be both a bullish or bearish pattern.