Forex Channel Line
Sometimes price movements tend to move inside the channel (channel) between two trend lines parallel to the trend. Which is then called the channel line. When these are identified, they represent a clear exit level for the entry position toward the ongoing trend. Aggressive traders can also use the channel line as entry level for trading against trends, although trading against trends is not recommended because such trades tend to carry a higher risk and tend to bring a higher failure rate than trading done towards the trend. Another significant signal is the price failure to reach the channel line. This can continue through the trend line and possible trend reversal.
In an uptrend, your trend line will support the price line along the low price reaction. The channel line can be drawn along the highest peak that parallels the trend line. Conversely, in a downtrend, your trend line will be along the high price reaction with the channel line drawn along the low correction level, parallel to the trend line.
The price should bounce off the channel line at least twice to confirm the channel’s significance. The more testing the trend line and channel line, the more significant the channel. But keep in mind that the trend line always remains more significant than the channel line.
An entry signal is given when the price tests the trend line without breaking it (breaks it). When this happens, trading begins with a trend direction with a stop loss just below the trend line. Channel lines can be used as price targets to take advantage. A more aggressive trader can use channel line testing as entry level for trading against trends, with stop loss just above the channel line and profit targets in the trend line. However, trading is against the trend and tends to be less successful.
Occasionally, prices bounce off the trend line but fail to reach the channel line. This could indicate a weakening trend and possibly precede the trend line break. If the trend line is broken with a strong volume, position entry against the trend can start with a stop loss just above the penetrated trend line and the price projection to take advantage of the channel’s height towards the trading direction.