Forex training – How to trade a basic upward sloping channel

Trading channels is amongst the most well recognised and used Forex trading strategies in the trading world. Credible Forex training should cover this as a basic strategy for people who want to learn how to trade Forex so in this article we are going to cover a few simple basics which should give you a flavour of how they are traded. Whilst there are sideways and downward channels to consider, in this article we are going to discuss the trading of an upward sloping channel.

As you will learn throughout your Forex training, an upward channel is a sign that the market is experiencing an upward trend. So, when an upward channel appears we know that the market is trending in an upward direction. The trick is to have the ability to identify the channel in a trending market so that you can use it to your advantage. This is true with other 'trend bound' Forex trading strategies and it is why they are so successful. 

The first factor to notice is that the trend is making higher lows. That is, the trend is bouncing of an uprising line. Once the trend bounces up twice from the upwards trend line we actually have a ‘line’ to draw. At the same time we are also looking for the same trend to have higher highs on the opposite (upper) side of the trend. Once the trend hits this uprising line the stock bounces back down towards the lower, uprising line. Once the upper, uprising line is hit twice we have ourselves a channel. However, as you will learn throughout your Forex training, the lower and the upper trend line have to be parallel to each other (or very close at least) in order to define an uprising channel.  Anything less or more means that the lines shoot out in the opposite direction or cross over a few sessions later.

To make profits from trading the uprising channel we need to place a buy at the lower bounce of the channel. Whilst we use the second bounce from the lower, uprising channel line to define it, we use the third line to place a buy. This enables us to trade with the trend and place the target at the top of the channel or the top of the last swing high. Any credible Forex trading course should encourage you to not place a sell from the third bounce of the top, uprising line. This is simply as you are trading against the trend. Whilst trading this way can deliver some form of success it is certainly not reliable enough to become a strategy. The bounce back downwards can simply be seen as a ‘covering’ rather than trend setters to profit from.