Following from part one.
The idea of trading channels is one of perfection and simplicity. However, it is important to be aware that channels may not be perfectly respected, with prices not completing touches to either top or bottom.
Sometimes price may even leave the channel only for it to re-enter the channel.
Knowing that partial declines and rises can occur will enhance your probability when trading a channel.
Channels may be adjusted depending on the trend. But remember that you should not adjust a channel in an attempt to fit your bias.
Channels serve to remove our bias.
Following from part one.
The idea of trading channels is one of perfection and simplicity. However, it is important to be aware that channels may not be perfectly respected, with prices not completing touches to either top or bottom.
Sometimes price may even leave the channel only for it to re-enter the channel.
Knowing that partial declines and rises can occur will enhance your probability when trading a channel.
Channels may be adjusted depending on the trend. But remember that you should not adjust a channel in an attempt to fit your bias.
Channels serve to remove our bias.
Key Points of the Lesson
IMPLEMENTATION
Look for early signs that a range could be forming by using support/resistance flips on higher timeframe levels (daily, weekly, monthly), and a rejection from the next level.
DEVIATION OF A RANGE / WHEN TO OR NOT TO ADJUST A CHANNEL AFTER A BREAK
Deviations of a range: price initially leaves the range but due to lack of follow-through price returns back inside the channel.
Closing outside of a channel is not bullish/bearish unless price can take the last high/low ⇒Market structure must change for confirmation of a breakout.
Use a line chart to have a clear overview of the market structure.
Only adjust a channel after a break when the market structure remains unchanged.
Never delete a well-respected channel.
PARTIAL RISES & DECLINES
Partial rises/declines can occur in several patterns.
Price rotates within the pattern but fails to reach a trendline or “edge”.
Partial rise ⇒ early sign of weakness, confirmed when price closes below the midline.
Partial decline ⇒ early sign of strength, confirmed when price closes above the midline.
TIPS & TRICKS
Horizontal parallel channels are easier to predict early on.
Wicks and candle boy closes can be used to build the channel.
You can have a channel within a channel.
TAKE HOME MESSAGE
Use high time frame horizontal levels.
Deviations are common, wait for a change in market structure.
Partial rises/declines can give a heads up.