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Trade Channels in Forex

A channel is what you obtain when you plot two trend lines at the support and resistance levels. Traders use these channels or trading channels also known as price channels as trading signals for buying and selling.The point where price hits the upper trend line is the selling area and the point where the price hits the lower trend is termed to be the buying area.

 

You can obtain a pricing channel by drawing a line parallel to the downtrend or the uptrend at the same angle of inclination. In a price channel, the top and bottom areas depict support and resistance.

Types of Channels in Forex

In forex, there are the three trending channels that can be used for price analysis.

 

  • Ascending channel: This channel shows the bull trend.
  • Descending channel: This channel shows the bear trend.
  • Horizontal channel: It is drawn on trend lines with zero slope when the market is moving sideways.

Drawing the channels

  • Ascending Channel: Ascending channel is drawn on an uptrend. In it, you draw a line parallel to the uptrend line and moved it up to touch the most recent peak.
  • Descending channel: Descending channel is drawn on a downtrend. In it, a line parallel to the downtrend is constructed and shifted to a position where it passes touching the vertex of the most recent valley.

 

Points to Consider

 

  • You must not try to fit the price to the trading channels.
  • The two lines of the channel should always be parallel.
  • The top area of a channel is said to be the sell zone.
  • The bottom area of the channel is the buy zone.

 

Pricing channels are the tools for technical analysis that aid in identifying the right places to buy and sell. These provide you with a better perspective of the market as compared to trend lines and can be used for effective trading decisions.

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