Trend Channel Trading Strategy - Learn How That Works

Trending strategies are always the best tools in financial trading. Today, in this article, we would like to show you another simple but effective trend-following system, which is mainly based on price action and trending movements. The system is named “Trend Channel Trading”.

Overview of the Trend Channel Trading Strategy


As you already know, there are plenty of indicators that are capable of detecting trending conditions very accurately. However, most professional traders all around the world preferred to manually draw trend lines to display the market’s grand movements because that will enable them to identify signals with ease and help avoid false trading opportunities more effectively. The Trend Channel trading strategy has been developed on that need. Using the Linear Regression channel, an automated combination of three parallel lines, this strategy is considered comprehensive and professional in spotting and displaying the market trends. In addition, in order to raise the likelihood of success, the inventor also added basement indicator Relative Strength Index (RSI). This is an extremely popular in the trading world, appreciated by almost most traders who have used it. With a high accuracy in determining market momentum, the RSI is responsible for confirming the reliability of the occasions defined by the Linear Regression channel.

The relative strength index was developed by J. Welles Wilder and published in a 1978 book, New Concepts in Technical Trading Systems, and in Commodities magazine (now Futures magazine) in the June 1978 issue. It has become one of the most popular oscillator indices


Over the last 18 months, this strategy has so far generated for us more than 6000 pips with the win ratio affirmed at 87.55%, one of the most effective trading systems in our collection. The Trend Channel trading strategy works best on the 1-day chart and could be used in any trading time frame and on any financial assets. There are normally about 2 to 5 signals spotted every month.

How to use the Trend Channel Trading Strategy to trade Forex


All the required indicators of the strategy are built-in in FinmaxFX’s MT4 platform. The strategy users just need to open up a 5-day RSI and define the current trend using the Linear Regression channel.

A bullish opportunity is identified when the following conditions are satisfied:

  • Prices approach the lower line of the Linear Regression channel with signs of a bounce.
  • The RSI line comes back above 30 from the oversold area.

    Trend Channel Trading Strategy - Learn How That Works


    Conversely, a bearish signal is spotted when the following requirements are met:

    • Prices approach the upper line of the Linear Regression channel with signs of a bounce.
    • The RSI line turns back below 70 from the overbought area.


    Trend Channel Trading Strategy - Learn How That Works


    There are some important rules when trading with this strategy:

    • Only one position should be entered at a time.
    • The confirming candle must be fully close before trading decisions are made.
    • The stop loss should be placed above/below the lower/upper line, while the take profit should be left open. Traders should gradually move the stop loss towards the profitable direction.


    Pros and cons of the Channel Trading strategy


    Pros



    • Highly flexible and easy-to-use.
    • Engenders reliable signals.
    • Enables traders to collect huge profits from big trends.
    • Requires no additional indicators.


    Cons



    • Necessitates a high level of patience.
    • Requires traders to constantly watch the trading platform.


    Conclusion


    Trend-following is always considered the best trading method by the first-class financial traders. And the fact is, the more simple a trending strategy is, the more effective it is. The Trend Channel is absolutely a wonderful strategy for trend-chasing traders who love the simplicity and accuracy. Nevertheless, it doesn’t mean the strategy can beat the market as there are surely false signals announced sometimes. Hence, don’t forget to use risk controlling and psychology managing methods alongside.
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