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Trend channels are a very popular trading technique for determining the current trend. However their biggest weakness tends to be the plotting, where traders can see the trend but they draw the boundaries using what are called candle wicks, which are somewhat extreme values that markets do not return to that often in the future.
There is an alternative, however, that eliminates this issue considerably, and as a result, the channels have a much higher success rate, as the lines given are much more consistent with the positions where the markets have a chance of actually going in the future.
Strategy entry rules
Entering long positions
- rising trend channel
-hitting the middle or lower trend line from above
Entry into short positions
-hit the middle or upper trend line from below
From the charts above/below, it is clear that the strategy is based on trend channels, which are created based on the line chart and we will quickly discuss how to create such a channel. First, we need to find either two not too distant bottoms (see chart above - purple markings) or tops (these are the hardest part, which requires some skill). Then we connect these two points, which gives us the first line of the channel. Now we need to create a parallel with this line, which will pass through the top (see diagram above - arrow number 1) or the bottom (depending on the direction of the channel being drawn) and finally we will construct another parallel, which will be placed approximately midway between the two lines already created (see diagram above - arrow number 2).
And now we proceed to the trading positions as in the case of ordinary channels (see chart below - red marking)
With this type of trend channels, success rates of 40% to 60% can be achieved. The great advantage of trend channels and all strategies based on them is that they can be used both in the case of short timeframes and in the case of extra long timeframes.
