The Forex horizontal price channel trading strategy is used when the forex market starts channeling horizontally. In other words, the price starts moving sideways.
What Is A Horizontal Price Channel?
A horizontal price channel happens when the market has been trending and eventually starts moving sideways for a certain period.
In a horizontal forex price channel situation, there are two forces: resistance and support. So what you will see is the price being restricted from moving outside this channel by the resistance and support zone.
Eventually, the price will break out of the horizontal channel.
Here’s a chart giving you an example of a forex horizontal price channel on the USDJPY:
Strategy Trading Parameters
- Currency MT4 Pairs To Trade?
You can use the Forex horizontal price channel forex trading strategy to trade any currency pairs.
- Timeframes Required?
Can use any timeframe from the 1 min up to the monthly.
- Any Other Forex Indicators Required?
No, you don’t need any forex indicator with this forex trading system.
But you need a good knowledge of reversal candlestick patterns to allow you to take buy or sell trades when those reversal candlesticks give the signals.
Trading Rules For Buy & Sell
- Once you see the price starts moving sideways, you need to draw two chart parallel lines. This forms your forex horizontal price channel. Sometimes, these two chart lines can be lines of best fit, or at other times, you can use the two chart swing high and swing low peaks on the out exterminates during the start of the channel.
- then wait for the price to hit the two lines
- Look for bearish reversal candlesticks to sell when the price hits the top line. Place a pending sell stop order 2-3 pips below the low of that bearish chart candlestick and a stop loss(SL) at least 5-10 pips above the high of the bearish reversal chart candlestick. Similarly, if the chart price hits the bottom line, place a pending buy stop order 2-3 pips above the high of the bullish chart reversal candlestick pattern that forms and place your stop loss 5-10 pips below the low of that bullish reversal chart candlestick pattern.
- For your take profit(TP), aim for the opposite end of the forex horizontal price channel where the line was drawn: use that as your take profit(TP) target level.
Advantages of The Horizontal Price Channel Forex Strategy
- Reasonable risk to reward ratio(R: R) when a trade turns out as expected.
- An easy forex trading strategy to trade if you can identify the channel early and take advantage of it.
Disadvantages of The Horizontal Price Channel Forex Strategy
- There’s always the difficulty of exactly knowing if what you see on your chart is a forex price channel formation happening or not.
- Then there’s the difficulty of defining the forex price channel zone to draw your two horizontal lines because the price will often spike out of the zone and fall back into the zone.
- As mentioned above, just because you can draw a line does not mean the price can respond to that line and move down or move up from it, the price can just come shy of those lines and go back, or it can come past the line, and even knock out your stop loss and then move into the horizontal price channel zone again.