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  • What Is A Horizontal Price Channel

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    Mo Alam
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    The Horizontal Price Channel Forex Trading Strategy analyzes price consolidation between obvious support and resistance levels to identify trading opportunities. When price reaches the extremes of the channel, traders look for reversal patterns like pin bars on lower time frames to enter positions, aiming to profit from mean reversion back to the opposite channel extreme. Risk is defined as a break of the high or low with momentum against the position. The strategy allows easy identification of trading ranges and risk levels, with potential profit defined by the width of the channel. Using multiple time frames helps spot reversals and reduces the risk of entering as price is breaking out of the channel.

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    HORIZENTAL CHANNAL

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    The Horizontal Price Channel Forex Trading Strategy analyzes price consolidation between obvious support and resistance levels to identify trading opportunities. When price reaches the extremes of the channel, traders look for reversal patterns like pin bars on lower time frames to enter positions, aiming to profit from mean reversion back to the opposite channel extreme. Risk is defined as a break of the high or low with momentum against the position. The strategy allows easy identification of trading ranges and risk levels, with potential profit defined by the width of the channel. Using multiple time frames helps spot reversals and reduces the risk of entering as price is breaking out of the channel.

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    34 views3 pages

    What Is A Horizontal Price Channel

    Uploaded by

    Mo Alam
    The Horizontal Price Channel Forex Trading Strategy analyzes price consolidation between obvious support and resistance levels to identify trading opportunities. When price reaches the extremes of the channel, traders look for reversal patterns like pin bars on lower time frames to enter positions, aiming to profit from mean reversion back to the opposite channel extreme. Risk is defined as a break of the high or low with momentum against the position. The strategy allows easy identification of trading ranges and risk levels, with potential profit defined by the width of the channel. Using multiple time frames helps spot reversals and reduces the risk of entering as price is breaking out of the channel.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 3

    Horizontal Price Channel Forex Trading Strategy

    The Horizontal Price Channel Forex Trading Strategy is a trading strategy that is based


    on a price structure called a trading channel and it is used by all levels of traders-
    including beginning Forex traders.
    To form a horizontal price channel, price action changes from a trending market into a
    market that is consolidating sideways.
    Price action begins to plot an obvious support level and a resistance level.  Given
    that markets spend most of their time consolidating (called a trading range) in a
    horizontal price channel, learning to trade price channels is a great addition to the
    toolbox of any trader – swing trader, day trader, and even position traders.
    Keep in mind that on the trading time frame a trend may not be evident, horizontal
    price channels, as price traders from support to resistance and back again, can setup
    great trending trades on lower time frames.  This is one reason why every trader should
    consider a multiple time frame tradingapproach. 
    What is A Horizontal Price Channel
    Traders should know what a trending market looks like – the price action pattern of
    higher highs and higher lows for an uptrend – reverse that for a down trend.

    A horizontal price channel may make the same trending pattern but it is done so with an
    obvious support and resistance zone.  When price movement comes close to either
    extreme, price rejects and heads in

    the opposite direction.


    Price Channel Pattern Forex
    You can see that price appears random inside of the price channel.  For the most
    part, taking trades anywhere but the extremes of the channel can make for some painful
    trading.  This is a one hour Forex chart so price looks more erratic.  A daily chart will
    look more contained.

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    When I see this type of price action, I become “on alert” for the potential of a range
    (channel) forming.  When that happens, I can begin to utilize a Forex trading strategy
    designed to take profits in this type of market.

    Trading The Horizontal Price Channel


    A trading strategy designed for this type of price movement is straight forward.  We
    are looking for price to move to one of the extremes and then will look for a reversal
    candlestick pattern to enter a trade.
    It does not matter what time frame you look at to trade channels.  I do suggest that traders
    use the multiple time frame approach through the following method:
    1. When price reaches one of the extreme points of the channel we look at a time
    frame 3-5 time lower than the trading time frame

    2. The lower time frame will give greater detail to see if whichever side, bulls/bears,
    brought price to the level, begins to lose control
    Trading indicators are not required although some may opt to use
    a momentum indicator to confirm that momentum is shifting in the market.

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    Action Forex Strategy
    This graphic shows two price action patterns that point to a reversal in price. 
    Remember, this trading strategy does not just buy at support or sell at resistance – we
    need to see a price action reversal at the extremes.

    The first reversal is the standard pin bar


    Price has come into support and price probed lower.  Perhaps some traders shorted at
    this level as a breakout but we can see that lower prices were rejected.  This is
    the trapped trader setup, it is a reversal pattern and works great for our horizontal
    channel strategy.
    One key for this type of reversal pattern is a long lower shadow.  The deeper price
    probes and is rejected, the better

    The second reversal pattern is virtually the same.


    The difference with this pattern is we had two tests of resistance before price fell.  If you
    placed a sell stop order below the low of the green reversal candlestick, you didn’t suffer
    any draw down.

    Will your entry be a market order or a pending order looking for momentum to trigger
    you into the trade?  These are questions you must ask before trading this strategy.
     

    Stop Loss Placement


    Eventually price breaks the high or low and the trend will continue.  Where will you
    place your stop loss?
    Placing your stop loss just over the pivot of the reversal candlestick makes sense – but
    could be too tight.

    The market, as we’ve seen in the second example above, can retest the highs and it could
    even breach the high and still not invalidate the trade.
    I think the high or low of the reversal candlestick is a good starting point but don’t put it
    just beyond it.  Give yourself a buffer but remember that you may not always let your
    stop get hit.

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    If price breaks with momentum against your position, something could be changing in
    the market.

    Don’t be a hero.  Get out of the position and look to find another channel trading
    opportunity.

    Should You Consider The Horizontal Channel


    Pattern Forex Trading Strategy?
    It can be fairly easy to spot the channels and even more importantly, to ensure you have
    trading rules surrounding what a price channel means to you.  Look above at the graphic
    again and consider a possible trading range is forming if price stops making a trending
    pattern.

    Using daily time frames helps view the range extremes better than a lower time frame. 
    If you ignore all price action in the middle of the price channel and only focus on the
    extremes, you increase your odds of a winning trade.

    Using multiple time frames once price comes close to the extreme of the horizontal
    channel helps you spot reversals that you may be late to on higher time frame charts.

    Your risk is well defined because you know exactly where you will be wrong – if price
    breaks the high of the reversal setup with momentum.

    Your profit targets are easy to spot – they are the opposite extreme from where you took
    your trading entry.

    The biggest risk is shorting just before price breaks out of the channel which will
    immediately give you a losing trade.  That is why risk management is vital to the
    horizontal channel strategy but with smart money management, most traders should be
    fine.

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