Binary Options Trend Channel Trading Strategy

Trend Channel Trading Strategy. Trend channels are a highly useful technical analysis and trading tool. Trend channels are easy to draw and provide trade ideas and entry signals, with the proper strategy. Here I’ll show you what these technical tools are and a simple and useful trend channel free binary options demo account without deposit trading strategy. Trend Channel. A trend channel is two lines that run along the price highs and price lows of a trend. Typically these lines should run pretty close to parallel of each other.

If lines are converging on each other this is likely a wedge pattern, and if the lines are moving away from each other, this could be a broadening wedge. These are different patterns altogether, so ideally we want the trendlines running pretty much parallel to each other. Figure 1 shows a trend channel in General Electric (NYSE:GE) stock. The lines are pretty close to parallel with each other, and the lines are touching nearly all the major price peaks and troughs.

Figure 1. Trend Channel – General Electric Daily Chart. Drawing a Trend Channel. A trend channel is a guideline, therefore, I prefer it to run along multiple high and low points, instead of running along only the extreme high and low points. I like this method because usually markets don’t move in perfect trend channels anyway. Rather, the price may move just above or below it before reversing course and heading back to toward to the other side of the trend channel.

Therefore, I use “lines of best fit” when drawing trend channels. Don’t worry if the lines don’t perfectly contain all the price action, because it isn’t necessary to get quality trade signals. Trend Channels Trading. Trading trend channels, when you find them, involves a surprising simple strategy. The first step is to find a trending asset. Then focus on assets which are moving in a relatively rhythmic way, such as General Electric in figure 1.

Once the trendline are drawn the price seems to gravitate toward these lines; moving into the vicinity of the line and then reversing course. Most traders make an error in that they jump into trades too soon. They assume the price will stay within the trend channel, but as figure 1 showed often the price will overshoot the trend channel resulting in a loss or a poorly timed trade. Another problem is that traders wait for the price to touch one of the trendlines before buying (lower trendline) or selling/shorting (upper trendline).

As figure 1 showed though, markets don’t move perfectly and it is highly improbable that the price will move right to the trendline and then reverse. The following trend channel trading strategy takes care of these two issues. It requires that you’re patient and let the market determine when you make your trade, and not the other way around. Trend Channel Trading Strategy. The rules for trend channel trading are simple. Once you’ve found an asset you want to trade and drawn your trendlines, wait for the price to move toward one of the trendlines.