Price action channel forex is a trading strategy that has been popularized by Dean Malone, a renowned forex trader. This strategy is based on the idea of using price channels to identify entry and exit points in the forex market. The strategy is simple and effective, making it a popular choice among traders. In this article, we will discuss how to build a price action channel forex strategy, step by step.
Step 1: Understand the Basics of Price Channels
Before we dive into building a price action channel forex strategy, it is essential to understand the basics of price channels. A price channel is a range of prices that a currency pair follows. In other words, it is a visual representation of the trading range of a currency pair. To create a price channel, you need to draw two lines: the upper line represents the resistance level, and the lower line represents the support level.
Step 2: Choose the Right Timeframe
The timeframe you choose will depend on your trading style and preferences. However, for the price action channel forex strategy, it is best to choose a timeframe of at least four hours. This will give you a clear view of the trading range of the currency pair, allowing you to identify price channels easily.
Step 3: Identify the Price Channels
To identify the price channels, you need to look for areas where the price has bounced off the support and resistance levels multiple times. Once you have identified these areas, you can draw a line connecting the highs and lows of the price action. This line will represent the price channel.
Step 4: Identify the Trend
Identifying the trend is crucial for the price action channel forex strategy. To do this, you need to look for higher highs and higher lows in an uptrend and lower highs and lower lows in a downtrend. Once you have identified the trend, you can use it to your advantage by looking for opportunities to enter the market.
Step 5: Enter the Market
To enter the market, you need to look for a price action signal that confirms the direction of the trend. This could be a bullish or bearish candlestick pattern or a break of the support or resistance level. Once you have identified the signal, you can enter the market with a buy or sell order.
Step 6: Set Stop Loss and Take Profit
Setting stop loss and take profit levels is essential for any trading strategy. For the price action channel forex strategy, you can set your stop loss below the support level for a buy order and above the resistance level for a sell order. Take profit levels can be set based on your risk-reward ratio.
Step 7: Monitor the Trade
Once you have entered the trade, it is essential to monitor it closely. You can do this by setting up alerts or using a trading platform with real-time market data. If the trade is going in your favor, you can consider adding to your position. If the trade is not going as planned, you can consider closing the position or adjusting your stop loss.
Conclusion
The price action channel forex strategy is a simple and effective trading strategy that can help traders identify entry and exit points in the forex market. To build this strategy, you need to understand the basics of price channels, choose the right timeframe, identify the price channels, identify the trend, enter the market, set stop loss and take profit, and monitor the trade. By following these steps, you can build a solid foundation for your price action channel forex strategy and increase your chances of success in the forex market.
