Swing Strategy Simple #4:(Horizontal Channel Pattern Swing Trading System)

Horizontal Channel Pattern TradingThe Horizontal Channel Pattern Swing Trading System is a really simple and effective breakout swing trading forex system which can be used to trade any pair of currencies in any timeframe you choose.

The horizontal channel is an area of congestion between an upper resistance level and lower support level.

If you look at the chart on the left, notice that price moved up and met resistance at “top1″, then price fell and found support at “bottom1″, then rallied back up to “top2″, met the resistance level again and bounced back down to “bottom2″-a horizontal channel pattern is now being confirmed when price starts to climb after reaching “bottom2″.

HOW THE HORIZONTAL CHANNEL PATTERN FORMS

1. When market has been  trending nice for some time, at some stage it will come to a stage where it consolidates. When a market is in consolidation, it tends to move very little up or down, tends to move sideways and one  of the patterns that the market forms during this stage is the horizontal channel pattern.
2. The horizontal channel is defined by two lines-the  line above is the resistance line and the line below is the support line.
3. After “bottom2″ that’s when we know we are in a horizontal channel pattern.

HOW TO TRADE THE HORIZONTAL CHANNEL PATTERN-THE TRADING RULES

Here are the rules of the horizontal channel pattern swing trading system for selling:

1. After bottom2 is formed and price starts to climb up, you wait until the resistance level is reached (at top3 location)
2. Your entry will be at top3-use a sell stop order. Enter your order only on confirmation with a bearish reversal candlestick pattern. Make sure the this candlestick closes before you place your order. For more info on what type of bearish candlestick you should be looking for, click here.
3. Place your stop loss 5-10 pips outside of the resistance level (or line) or place you stop loss anywhere from 3-5 pips or more just above the bearish reversal candlestick pattern which you use to enter a short trade.
4. Your take profit target level should be on the price where the support level is sitting.

Here are the rules of the horizontal channel pattern swing trading system for buying:

1.  After “top3″ forms and price moves down to the support level which would be around “bottom3″  wait for a bullish reversal candlestick pattern and place your buy stop order 3-5 pips above its high after it closes.
2. Place your stop loss order 5-10pips outside of the support level or you can place it anywhere from 3-5 pips or more just below the low of the bullish reversal candlestick pattern which you use to enter a long trade.
3. Your take profit target level should be the price level at which the resistance line is.

ADVANTAGES OF THE HORIZONTAL CHANNEL PATTERN SWING TRADING SYSTEM

1. Its not difficult to spot the channel pattern if you know what to look for.
2. horizontal channel patterns that happen in larger timeframes like 4hrs and daily have a huge range of movement between the channel so if you enter a trade at a right time, you will make good money trading this channel.
3. the risk (or stop loss) is very small and the great thing about this is you are using support and resistance levels to base your stop loss on which is the best way to place a stop loss.

DISADVANTAGE OF THE HORIZONTAL CHANNEL PATTERN SWING TRADING SYSTEM

1. If you are trading on a much smaller timeframe, you need to be vigilant and regularly monitor your trade(s) as it may bounce on the other side (either support or resistance level) and wipe out your profit when you should have taken them or at least lock in some profits before that happens.
2. horizontal channels don’t last forever-a breakout may happen soon. In case of breakout happening (either to the downside or the upside), you need to switch to a breakout trading system to capture those breakout moves.

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