Parallel channels are a simple but effective approach to trading in different markets, timeframes and platforms, including IQ Option. The strategy involves graphic analysis instruments which available to each user. Trader will need for successful trading with “parallel channels”: a general understanding of the market, knowledge of the trading platform, ability to use trend lines and competent risk management.
Strategy “Parallel Channels” has proved itself well in trading with binary options and forex. Today, traders use this approach as part of an individual trading system, and as a standalone instrument. Channel consists of two parallel lines, between which the price moves. Trend lines perform the function of support and resistance levels for price.
Parallel channel on price chart
How to build a parallel channel on the price chart
Trader needs to perform the following actions to properly build a parallel channel on a chart :
1) to analyse the state of the market: the degree of volatility (the approach is more successful in stable markets);
2) to determine the current trend on all timeframes – this will help eliminate trade against trend (the strategy is valid only according to the trend);
3) to set the working timeframe (parallel lines are suitable on any timeframe);
4) to find a clearly expressed wave motion of the price: if it is ascending, then there are two peaks one above the other and a low point; if downward, then the bottom two points one below the other and the top;
Parallel channels on uptrend and downtrend
5) to click on the icon of the graphic tools menu and to select one trend line;
6) to build the instrument on lower points or tops of current trend;
7) to turn on second line and set in parallel with the first and to connect the opposite vertices of the price wave.
Parallel channel on an uptrend
On a graph with a downward trend, a parallel channel is constructed in the same way. Trader can start trading now, when the price moves within the channel.
How to trade on strategy “Parallel Channels”
Profitable trading positions when using strategy are the lowest or highest points of price correction depending on the main trend. In other words, the price movement is wavelike, and the most profitable point for making a deal is a place where the chart has rolled back from the main direction to the level of support or resistance. Trader must buy or sell assets accordingly at these points.
Deals on bear trend and bull trend
Trader can also trade during flat, but the probability of a successful transaction is 1: 2. In this case, the user will need Stoch, RSI or other oscillators with overbought/oversold levels of the market as additional means of confirming the trading signal. Knowledge of patterns will be a good application to the strategy “Parallel channels”.
Trading during flat with confirmation of signals by the Stochastic Oscillator
How a trader will be able to recognize the completion of the current trend using the channel
Any trend ends sooner or later. Simple signals of market behavior will help traders to determine the place where the trend is accelerating or weakening and will soon change:
1) With a bearish trend
The price intersection the support line and the next candle starts below the channel limit – the trend has accelerated. In this case, the support line becomes a new resistance line.
The chart intersection the resistance level and the next candle confirms the price growth – the trend has weakened and changed. Resistance level to become a new line of support.
2) With a bullish trend
The price intersection the resistance level and the next candle confirms the price growth – the trend has accelerated. Resistance level to become a new support line.
The chart intersection the support line and the next candle starts beyond the channel limit – the trend has weakened and changed. In this case, the support line becomes a new resistance line.
Strategy “Parallel Channels” is notable for the fact that it works successfully without special indicators and oscillators. It is enough for traders to recognize the trend movement, to impose two parallel lines on it and, while tracking price fluctuations, to open trading positions at strategic points.
Before starting to trade for real money, beginners are recommended to test strategies on historical charts and practice actions on the demo account of the broker IQ Option. This training approach strengthens the trader trading style and minimizes risks of losing real funds on the deposit.
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future
GENERAL RISK WARNING