Channel Breakout Trading

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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.

For this channel breakout trading strategy to work, you should first identify the channel on an intraday chart like 5 minutes, 15 minutes, 30 minutes charts etc prior to the announcement of a major fundamental news in the market. Price action should be contained within a narrow range.

Enter long when the price action breaks above the upper channel line with a stop loss placed just below the upper channel line. Use a trailing stop as the price moves in your favor.

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.

Now, in case of a breakout in the upward direction, long entry order will be triggered. Place stop loss immediately 10 pips below the upper channel line and use a trailing stop in case the upward move continues.

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.

About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. Get these 3
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that made 1,306.5% in 1 month of live trading.



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