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Chapter 8, Part III. Channels. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 15, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Also they call it “Consolidation area” or “Trading range”. To illustrate them I will use a 60-min AUD/USD chart:


    As you can see, any properties of support/resistance and trend lines could be applied to the lines of any channel – upward, downward or sideways. Here is an excellent example on #3, because here you can see the same movements that we’ve discussed with support/resistance – the importance of Close price, possible breakout failure patterns, aka Wash & Rinse (stop licking), as a warning about a possible move in the opposite direction – you can take a look at all of them here.

    The feature of the sideway channels is that there is no difference in angle between nearest tops and bottoms – market is forming new highs and new lows almost at the same level.

    Here is an algorithm how to build sideways channel:

    1. Draw any sideways trend first – you may start as from tops as from bottoms;

    2. Clone it – draw another one (parallel), adjust it length to the length of potential channel

    3. Drag it to most recent low or high - depending on from which sideways trend you’ve started;

    4. If this is really channel – then all previous lows/highs should lay with solid accuracy on dragged line (see chart #3).

    5. Don’t fit it forcedly to market action!

    Special properties of channels:

    1. When you draw a channel – lines have to be parallel to each other;

    2. In general, bottom line of the channel is treated as support while upper line – as resistance. Although there is an approach exists that tells that you may buy from lower border of the channel and sell from upper border we do not recommend make trades purely on any lines - trend lines, support/resistance or channels. Our approach – is to use them as a part of the overall context of a particular trade. How to do that - you will learn later on in our school.

    3. And - Don’t fit it forcedly to market action!

    Final notes about the channels

    In fact, lines of any channel have similar properties as trend lines and support/resistance lines although they have significant difference in drawing rules. I suggest that you should reread the rules that we’ve discussed in support/resistance part and trend lines part. All of them are applicable to a channel’s lines as well. This fact we’ve shown on the #3 chart. That’s important.

    And now let’s talk about how all these lines could be traded…

    Pipruit: Finally, I’ll see the real market…

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive will answer them soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.

    #1 Sive Morten, Dec 15, 2013
    Lasted edited by : Feb 12, 2016
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