Covering Unique Situations 2: An Upward 3 Point-Channel Setup

Covering Unique Situations 2: An Upward 3 Point-Channel Setup

Submitted by adil on Wed, 03/12/2014 - 10:15

To read trends and patterns in a price action of any preferred asset in a timely manner, allows the trader to earn handsome returns. A 3 point channel setup is an effective approach that lets the trader identify any trend formation going upwards or downwards. In an earlier article, we have already discussed the downward 3 point channel setup. In essence, the upward 3 point channel is the opposite of the downward 3 point channel.

Here as well, the trader has to first identify an asset with a strong trend, followed by a solid breakout and then a trending channel to utilize for taking binary options trading positions. The upward 3 point strategy hunts for a long drawn upward moving trend, converging to break out from its weakening support level. A weakening support level is witnessed in the trend when there are lower highs. Before the price plunges in to a downward trend, a small valley or flat price movement is also witnessed.

To apply this method, the trader should choose a price chart which has a rising trend. Once the chart has been identified, the trader should join together the price lows to form a rising trend line, up to the point where the price retreats to break below this trend line. When the price breaks below this trend line the trader should identify the first lowest low, and then the second lower low. These are called points 1 and 3, and are used to construct the lower line of the channel, which can be construed as the support level. Point 2 is the first highest high lying in between the points 1 and 3. Point 2 is used to construct a line parallel to the lower line. This other line can be construed as the expected resistance level. Together these two lines form a channel within which the trader expects the price to move.

This approach can be seen in action in the figure below:

As seen in the figure above, the trader constructs a green rising trend line, up till the point where price breaks in to retreat. Point 1 is the first lowest low, point 2 is the first highest high and point 3 is the second lowest low. As shown in the figure, points 1 and 3 are joined together to form the lower line of the channel, whereas point 2 is used to draw a parallel line, the upper line of the channel.

Whenever the price touches the upper line of the channel, the trader should enter a put binary option trade. That is because the resistance is stronger in the downtrend channel. The trader can also enter touch and no-touch trades using the channel. The trader can choose prices within the channel for touch bets. Furthermore, alternatively, the trader the use price position lying outside this channel for no-touch position bets. Price positions above the upper line represent a better option for no-touch zone, because of the strong resistance due to a downward trend.