Parallel channels provide multiple potentials for trade setups and can even add to confluence.
When the market is trading in a sideways range, these are often great opportunities to recognise a parallel channel.
Many inexperienced traders will become impatient during consolidation phases and attempt to guess a breakout before it occurs. Thus, they lose money.
Accepting the current trend for what it is and not what you want, is more important.
Parallel channels provide multiple potentials for trade setups and can even add to confluence.
When the market is trading in a sideways range, these are often great opportunities to recognise a parallel channel.
Many inexperienced traders will become impatient during consolidation phases and attempt to guess a breakout before it occurs. Thus, they lose money.
Accepting the current trend for what it is and not what you want, is more important.
When you have a level of awareness that reflects an experienced trader, you will be able to identify patterns such
as channels and actually trade them. Channels are effective for removing biases, and they can be traded for both day trade and swing trade positions.
Once a channel has been established we can trade it until the range breaks.
Of course, channels are not solely appointed to sideways ranges, there are also opportunities to establish sloping channels for bullish and bearish trends.
Key Points of the Lesson
UTILITY
Channels can help define tradeable ranges early on.
They can add confluences to your trading setups.
Channels can also be useful for day trading and swing trading.
IMPLEMENTATION
Should be at least 4 touches (2 top and 2 bottoms).
A channel can also start with 3 touches, use the midline for a take profit area, and the edges as possible entries.
Technically a neutral pattern.
THEORETICAL EXAMPLE
Use the midline as your first take profit area (50%) and close your position at the top of the channel.
If we see selling activity increasing at the top of the channel we can take a short position with TP1 at the middle of the channel and TP2 at the bottom of the channel.
Repeat this process as long as the range holds. Use orderflow (volume, delta, open interest) to help gauge if the range will hold or not. “trade the range until it breaks’
PRACTICAL EXAMPLE
TIPS & TRICKS
Trading the break in the overall trend direction generally yields better results.
Partial rises/declines are a sign of weakness.
Sloping channels are expected to provide continuation of the initial trend.
Day trading channels (15 min - 1 hour): traded bottom to top and vice versa with 50% TP at the middle of the channel.
Swing (long-term) channels: Midline is generally a full take profit.
Channels are regularly formed on bull/bear flags.
Volume can decrease as the channel continues ⇒ look for an increase in volume upon breakout and monitor the order flow for possible deviations.
Use market structure for your stop loss. The take profit will depend on the context.
TAKE HOME MESSAGE
Channels help us define tradeable ranges early on.
They can offer strong additional confluence.
Important to monitor order flow on possible breakouts.