News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Bullish
Wall Street
Bearish
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Mixed
USD/JPY
Bearish
More View more
Real Time News
  • The Dow Jones, S&P 500 and AUD/USD could be at risk of extending losses as retail investors increase upside exposure. What are key technical levels to watch for? Find out from @ddubrovskyFX here:https://t.co/ivQmFUTGdU https://t.co/aTLUtE6OaE
  • 🇯🇵 Inflation Rate Ex-Food and Energy YoY (SEP) Actual: 0.0% Previous: -0.1% https://www.dailyfx.com/economic-calendar#2020-10-22
  • 🇯🇵 Inflation Rate YoY (SEP) Actual: 0.0% Previous: 0.2% https://www.dailyfx.com/economic-calendar#2020-10-22
  • Heading into the final US Presidential debate with a market that seems to be distinctly focused on the November 3rd election - or its implications including a US stimulus deal potential - two-thirds of people in my poll don't think it will factor into heavy Friday volatility: https://t.co/dArCxCWwAn
  • 🇯🇵 Core Inflation Rate YoY (SEP) Actual: -0.3% Expected: -0.4% Previous: -0.4% https://www.dailyfx.com/economic-calendar#2020-10-22
  • Heads Up:🇯🇵 Inflation Rate Ex-Food and Energy YoY (SEP) due at 23:30 GMT (15min) Previous: -0.1% https://www.dailyfx.com/economic-calendar#2020-10-22
  • Heads Up:🇯🇵 Core Inflation Rate YoY (SEP) due at 23:30 GMT (15min) Expected: -0.4% Previous: -0.4% https://www.dailyfx.com/economic-calendar#2020-10-22
  • Heads Up:🇯🇵 Inflation Rate YoY (SEP) due at 23:30 GMT (15min) Previous: 0.2% https://www.dailyfx.com/economic-calendar#2020-10-22
  • Political volatility concerning the US election could raise demand for the haven-linked Greenback while putting a discount on holding a relatively illiquid commodity like gold. https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/asia_am_briefing/2020/10/22/Gold-Price-Uptrend-at-Risk-Ahead-of-Third-Presidential-Debate.html
  • The third and final US presidential debate will take place today from 9:00-10:30 PM ET at Belmont University in Nashville, Tennessee. Moderator: Kirsten Welker Topics: Fighting COVID-19, American Families, Race in America, Climate Change, National Security and Leadership.
A New Channel Method to Determine Key Breaks Early

A New Channel Method to Determine Key Breaks Early

2014-09-26 03:00:00
Tyler Yell, CMT, Currency Strategist
Share:

Talking Points:

-Using Trend Strength to Draw a Channel

-Where to Draw the Channel From

-Trading the Break with Managed Risk

Trendlines are a simple tool to help you see when momentum has broken. Traditionally, trendlines are drawn off price extremes to provide a key sign of a trend reversal similar to a moving average. An issue that needs to be addressed is that by the time a traditional trendline is broken, a lot of the move has already happened and you may enter on an extended. This problem of entering on an extended move leaves you at risk of entering before the market moves against you and makes it difficult to have a good risk: reward, which is critical for long-term trading success.

See also: What is the Number One Mistake Forex Traders Make?

Learn Forex: Traditional Trendline Breaks Can Occur on Extended Moves

A New Channel Method to Determine Key Breaks Early

Presented by FXCM’s Marketscope Charts

Where to Draw the Channel From

This article will articulate an uncommon method for drawing a trendline based on the strength of the trend you’re looking to for a potential reversal. Instead of a taking extreme price lows in an uptrend or price highs in a downtrend and drawing a trendline by connecting those levels, we’ll cut a line down the middle. This can be done by drawing a trendline from a key low to a key high in a downtrend or a key high to a key low in a downtrend. What we’re after is the slop of the trend and use that as a component to draw a channel that can help us identify a break earlier than traditional trendlines.

Learn Forex: A Centerline is based on Extreme Lows to Extreme Highs (Opposite for Downtrend)

A New Channel Method to Determine Key Breaks Early

Presented by FXCM’s Marketscope Charts

To manage the problem of entering on an extreme price, we can use the trendline tool and selecting the High/Low option. As per FXCM’s default trading platform, this option is shown above. Take an recent extreme low and trace it out to an extreme price high. From this line, you will take a copy of that line, pressing the Control button on the key board with the mouse over the line. You can then drag this line over to a corrective extreme.

Step One: Draw Trendline from Low to High

A New Channel Method to Determine Key Breaks Early

Presented by FXCM’s Marketscope Charts

Step Two: Copy That Line Toward An Extreme Corrective Low (Corrective High In A Downtrend)

A New Channel Method to Determine Key Breaks Early

Presented by FXCM’s Marketscope Charts

Step Three: Use The Break Of The Copied Line To Determine Potential Trend Reversal To Trade

A New Channel Method to Determine Key Breaks Early

Presented by FXCM’s Marketscope Charts

Trading the Break with Managed Risk

There is one question you need to ask once a potential break has been identified.

Is the market making lower highs and lower lows after breaking the copied centerline?

If the answer is yes, the channel you’ve drawn may have helped you enter on a reversal at earlier stages than a traditional trendline. From the point of the copied line break, you can look for key levels like prior support to break to confirm the trade and reduce your risk or you may use simple price action to trail your stop in the direction of your trade.

If price action reverses and you think a move lower is at hand but higher highs and higher lows start to develop, then it is best to step aside until the waters are less muddy.

See Also: How to Manage Risk with Price Action

Happy Trading!

---Written by Tyler Yell, Trading Instructor

To contact Tyler, email tyell@dailyfx.com

To be added to Tyler's e-mail distribution list, please click here

Tyler is available on Twitter @ForexYell

Become a Smarter Trader Today

Claim your FREE universal membership to DailyFX Internet Courses& save yourself hours in figuring out what FOREX trading is all about.

You'll get this FREE 20 minute “New to FX” course presented by DailyFX Education. In the course, you will learn about the basics of a FOREX transaction, what leverage is, and how to determine an appropriate amount of leverage for your trading.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES