Are you looking to ride the waves of financial markets and make savvy trading decisions? In this beginner’s guide to trading channels, we’ll unlock the secret to spotting profitable opportunities, through the various types of trading channels, from Ascending to Descending to Horizontal.
What is a Trading Channel?
A trading channel, also known as a price channel, is a visual representation of a price trend within a certain range. It consists of two parallel lines: an upper trendline (resistance) and a lower trendline (support).
These lines contain price movements, creating a channel or corridor where prices tend to stay within. Understanding these channels helps forex traders make profitable decisions.
Types of Trading Channels
Here are the three types of channels that beginner traders must be aware of:
1. Ascending Channel
In an ascending channel, the lower trendline is ascending at a steeper rate than the upper trendline. This suggests an uptrend, where prices are generally rising.
2. Descending Channel
In a descending channel, the upper trendline is descending more rapidly than the lower trendline. This indicates a downtrend, with prices generally falling.
3. Horizontal Channel
A horizontal channel has both the upper and lower trendlines running nearly parallel to each other. Prices within this channel are typically moving in a sideways or range-bound manner.
Trading Strategies Using Channels
Knowing trading strategies is one part of the equation. The other side requires you to know how to develop trading strategies using channels.
Channels can be used for various trading strategies, including:
Buy when the price breaks above the upper trendline of an ascending channel or sell when it breaks below the lower trendline of a descending channel.
Buy near the lower trendline in an ascending channel or sell near the upper trendline in a descending channel, expecting the price to reverse back toward the opposite trendline.
In a horizontal channel, buy near the lower trendline and sell near the upper trendline. This strategy assumes that prices will continue to move within the established range.
Use other technical indicators, such as oscillators or moving averages, to confirm channel patterns before making a trade.
“If you want to trade channels on your mobile, make sure you have one of the best trading apps – as many forex apps won’t feature this functionality”.
Why You Need the Best Forex Trading App in South Africa when Trading Channels
Having the best forex trading app can go a long way in helping improve your forex trading game in South Africa. It is important because of real-time market analysis, efficient execution, mobile flexibility and risk management.
Some forex trading apps also provide educational resources that you can use to master trading channels and make them an invaluable part of your trading arsenal.
However, it is important to note that if you wish to start trading channels on mobile, you need to make sure you are signed up with one of the best forex trading apps in South Africa as many forex apps won’t feature this functionality
Final Thoughts: Mastering Trading Channels
Understanding trading channels can be relatively straightforward for beginners. However, mastering them requires patience and experience. In some cases, beginner traders may lose money in the market before they know how to utilise trading channels.
This is why new forex traders need to start slowly, protect their capital and only scale when they have mastered the art of trading channels.