FREE FOREX STRATEGIES

Forex trading strategy #9 (Trend line tunnel)


Creating a support/resistance tunnel on the price congestion and trading on the break of this tunnel is a milestone of Forex trading discoveries.

This trading system/approach needs no indicators and can be applied to any currency and traded in any time frame where coiling in a tight range is spotted.

Entry rules: Find consolidation on the chart and draw two horizontal trend lines – support and resistance. Once the price breaks trough one of the trend lines and a current price bar closes outside the tunnel – buy/sell in the direction of the breakout. (If price pierces the trend line, but did not close outside the tunnel, cancel the previous trend line and draw another one according to the new conditions).

Note: also very often happens that once the price makes it through support or resistance it rocks down/up very quickly and so, more aggressive entry can also be adopted – without waiting for the current price bar to close.

Exit rules: not set, however, it is believed, that the price after breaking the tunnel will travel the distance equal to the width of that tunnel.

FOREX TRADING SYSTEM


Advantages: very simple and extremely effective. It can provide 100% profitable entries if short profits are taken - usually with the close of the first candle right after the entry.
Disadvantages: very accurate and well thought entry point should be picked. Orders placed very close to the tunnel can be triggered by sudden whipsaw early before real breakthrough occur.



http://forex-strategies-revealed.com/


Hi Edward,

I'm going to try this strategy on EUR/USD.
What time frame is best to trade using this strategy?
And how many candles needed to form a valid tunnel?

Hi,

Trading a tunnel breakout does not require any specific time frame. It is a regular behavior of the market to go into consolidation and then break out of it. You can meet this type of tunnel formation in any time frame. However, usually the larger the time frame the more profits/pips a trader can expect to get on a breakout. Try hourly charts, also 15 minute charts, both are good for tunnel breakout trading.

The tunnel needs no specific amount of candles to be called valid. It is rather a visualization of the price congestion process: you open the chart and you see that the price is trading in a tight range and bouncing off certain price levels (support/resistance bounds). A couple of such pulls and reverses and the tunnel is valid to set breakout trades.

Regards,
Edward.

i wouldn't try this technique during quiet market times though.

This is a great technique and can be extended to ascending and descending channels. i have found that the initial break is usually a point of indecision in the market as some traders are slow to spot this pattern and simply see it as a buying or selling opportunity for the trend to continue. and maybe half are using a slower MA.

I find that trading the second wave has a higher probability of continuing without retracing first so tight stops can be used with better results. Set a close target too.

Another theory from the conspiracy nuts is that the forex markets are manipulated so the first people to trade the breakout are given the shake and bake treatment but all the trading books say to get on board the first bus leaving the station as there might not be another one.
and if it's written it must be true, right?

steve b
perth

Steve is absolutely right here. If you dig to the bottom of this strategy you'll discover that entering on the second wave is much safer and a trade itself can be protected with a tighter stop.

In fact, if you look closer at the illustration above, you'll notice, that just after the price broke through the support line and our Entry order was filled, the market returned back the next hour and tested the failed channel line (there on the re-test many traders sell with more confidence). The price then continued further down.

Profitable trading!
Edward.

Hi Edward,

With all these you are given to us, your wish and your desires would always be accomplished to your taste. Thank you!

FAIEZ

Hi Ed,

I use tunnel break out/down for a while now. The most effective is when you have a very small and short tunnel like 3 to 5 very small candles minimum with very short or no shadow (less than 20pips long in total), the price when it breaks, goes very far like a champagne bottle lead when open.EUR/USD 1H is really good with that. It works in the direction of the RSI returning from over bought/sold. Stochastic and RSI should be in the same mode (I mean both over or below the same extreme line) Break down when RSI is coming from overbought and Break out when RSI comes from oversold. The stop loss should be 5 to 10 pips above/below the longuest candle in the setup... Because this is a setup with small candles, the risk is small arround 30Pips. usual target 80pips... More effective if it is made in the direction of major trend...
The tunnel could be a Chanel I mean not always perfectly horizontal.

TO BE AVOID IF ADX IS BELOW 30. ADX above 30, we have more than 90% accuracy generating with 1 or 2 stup a day generating 120pips a day in average

For example.
1- In a downtrend, after a pullback rally, Stoch is in overbought and RSI is coming from overbought... the tunnel formed you place a Sell Stop at 5pips below the lowest candle. you are in the market when the price breakdown. Place a stop 5pips above the tallest candle. Stoch must follow if not, get out and take the few pips as commission free.

2-Do contrario in uptrend with a sell off pullback, stoch and RSI in oversold.

Good luck... and thank to Ed for the great achievement so far... this site is unique.

Thierry

Thank you Thierry for the great comment and the insight on your trading strategy!
I've taken notes for myself as well.

Happy and profitable trading!

Edward

eddy,
my problem is to know at what point to draw the tunel. what are the parameters to use
thank
uzo