Forex trading strategy #9 (Trend line tunnel)
Submitted by Edward Revy on February 28, 2007 - 15:25.
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.
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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.
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
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.
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?
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