Trading with Channels

Trading with Channels

Submitted by adil on Mon, 03/17/2014 - 11:57

A binary options trader must be equipped with enough strategies and tools, that he gains the ability to turn most of the price action in to his gains. The trader should know how he should trade ranges and trends, what strategies he should choose to employ, how he should manage his risks, etc. The trader should gear themselves with simplest to most advanced and complex strategies.

Channel based strategies are one of the simplest strategies that are employed for trading binary options profitably. They are only useful when price action is restrained within limited volatility levels.  With a price channel the trader can predict easily the area or range where the price is likely to jump around. For a binary options trader, this provides an ample opportunity to trade call or put binary options depending on the direction of the channel.

A channel can be in any one of the three forms, that is, it can be horizontal, ascending or descending. The channel that is ascending demonstrates an uptrend in the price action, whereas a descending channel shows a downtrend in the price action. Horizontal channel occurs when the price tends to move sideways, stays consolidated or remain range bound. The channel lines do not converge or diverge at any point, they remain strictly parallel. The price continues to bounce off resistance or support levels and does not breakout of them.  

The trader can setup a channel by plotting the resistance and support lines on the price chart, or alternatively use the specific tool for setting up a channel in the trading platform. The channels should always, at the least, touch two highs and lows of the price action at the respective channel lines. Once a channel is set and trend is set, the trader should go for touch or no touch trades. Whether trend goes upwards, downwards or horizontal, the trader should utilize the channels boundaries for most logical areas to enter touch and no-touch trades.

In channels with rising trends, the price essentially has a very strong support level, therefore the most plausible point to enter a no-touch trade is below this support line. Naturally when support level is stronger, it is less likely that the price will move below it and touch the trader’s anticipated no-touch level. Similarly, in a decreasing trend, the support turns out to be weak, and resistance continues to stay strong throughout the channel. Therefore in such a case the trader should enter no-touch trading position above the resistance level.

The important aspects to keep under strict consideration are any other aspects relating to the asset’s price that may radically change its course of action, for example, any news item. If the trend and channel are anticipated to stay their course, the trader should take benefit of the situation hastily, and keep on entering trades in quick successions with shorter durations. Therefore, when a trader is equipped with simple and effective techniques and strategies, any situation the trader faces can be turned in to profitable trades.