Forex channel is one of key notions of technical analysis. It is defined as a sustainable corridor of price fluctuations with a roughly constant width.
What is Trading Channel
Trading channel is a key method used by traders to create buy and sell signals from technical charts. Trading channel provides the most important strategy that a trader can use for long time analysis and trading decisions. Usually there are two wide types of trading channels that traders will use: trend channels and envelope channels.
Formation of Trading Channel
Visually the Forex channel is described by two parallel trendlines, a support below connecting important lows and a resistance above connecting important highs.
- In an uptrend the trendlines have positive slope.
- In a downward trend the trendlines have negative slope.
Trading Channels Interpretation
- Positively sloping channel suggests that forces of demand are permanently greater than forces of supply. However a break below the lower trendline (plus certain deviation is widely common) may be a sign of the channel’s break and be considered a sell signal.
- Negatively sloping channel suggests that supply is permanently overwhelming demand. However a break above the upper trendline (plus certain deviation is widely common) may be a sign of the channel’s break and be considered a buy signal.
- Until the channel is broken the trendlines are believed to keep prices inside the channel acting as support and resistance lines.
How to use Forex Channel in trading platform
You can see the graphical object on the price chart by downloading one of the trading terminals offered by IFC Markets.