Description of the Price Channel Indicator
Probably the most common trading tactic in financial markets, including Forex, is the use of channel strategies for trading. The simplest strategy is to build a channel for three extremums on the chart of the price of the trading instrument. This is not difficult, but requires the trader to constantly “handmade” the schedule. It is much easier to use technical indicators to build channels. There are many options for such indicators. Let’s look at one of the most popular indicator:
Application of the Price Channel Indicator
The boundaries of the indicator are calculated from the average values of the price minima for the lower limit and the highs for the upper for a certain period of time (the number of candles). The average line of the indicator is the arithmetic mean between the boundary values.
The Price Channel indicator can be adjusted by one parameter – by time (by the number of candles for calculation). The standard value is 14. Nevertheless, in practice, when trading, traders select the most appropriate value for a specific timeframe. You should choose the indicator value for the trading instrument and the corresponding timeframe, when 95% of all prices will be inside the channel. Then you can confidently declare with trade that when the price is inside the Price Channel Indicator, the market is stable. And when outside the indicator – there is a pronounced impulse movement, and, most likely, short-term. And soon, there will be a return to the channel.
To build trading tactics, traders often set one indicator for several Price Channel indicators, PCs with different time periods. In order to see both the current situation with the trading instrument, and global. This helps to avoid false signals to enter the transaction. Serves, so to speak – a confirmation, an indication of the prevailing trend.
In this system of channels, it is possible to build various trade tactics, oriented both on the retreat from the borders and on the breakdown. The use of 2 indicators immediately gives the trader a huge space for maneuvers in building trade tactics.
The strategy based on the price channel
Simple trading strategy based on a single indicator of the price channel Open the deal at the opening of the third candle after the candle closes behind the middle line of the indicator. And we close the deal on the reverse conditions. Stop Loss after opening we put on a minimum of a candle on which there was a breakdown of an average line of the indicator.
Accordingly, for transactions to sell mirror conditions.
When building trade tactics based on the Price Channel indicator, always remember about the rules of capital management, and also use the confirmation signals from other indicators.