Trading Strategy Using Trend Channels (Updated)

This trading strategy is a sample of a trader observations and overview when analysing GBP/USD pair trend channel.

Observations

  • On Tuesday 25 of September 2012 the GBP/USD pair is about to turn into a downtrend.
  • In the last 2 month the currency has rally from 1.55 to 1.62.
  • An expected pull back is on the card.
  • An up trend channel is indicating that prices have tested the upper line and are now turning to the lower line.

In a trend channels when prices reach a trend line of a channel, its is usually interpreted as a potential end for that zig and should zag away to the other line of the channel.

The price is expected to fall around 1.60, just around the bottom line of the trend channel.

Trend Channels are good indicators for a new change in direction. When the prices breaks outside one of the trend lines, it could be expected a change in that direction. Consecutively that price point were the break occurs could be used as support or resistance.

In the chart there is another indicator, the Stochastic. Which is also confirming that the price is falling.

There isn’t much room to move. But the currency pair can be sold or go short at current level of 1.6190 and expect to profit when prices reaches the 1.6024 levels.  Or till indicator reverse to the upside.

If the price breaks beyond the trend line then it is possible to hold on to the position and even increase the holdings.

At this stage will be necessary to do a review of the current conditions, a sudden change in direction to the upside could incur in significant losses.

Stop loss should be around 62.66. But if indicator fail to reach the bottom and turn to the upside, it is recommended to close the position rather than waiting for the stop loss.

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Chart

Trading_strategy_GBP_USD_trend_channel

Trading_strategy_GBP_USD_trend_channel

Follow Up

Chart Image Updated on Wednesday 24 October. This demonstrates that the Trend Channel has effectively signal a change in direction.

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