Forex trading strategies for channel breakdown and price return
“Breakdown” trading strategies for beginners: trading on channel indicators for a breakdown of the channel boundaries or a rebound. Types of levels, rules for opening a position and exiting the market.
I welcome readers to our forex blog for traders. Today we will consider the simplest Forex strategies for beginners, and for them, we will use channel indicators, which are always distinguished in a separate category. Their essence is reduced to opening a position at the time of the breakdown of the channel or on the rebound. The professionalism of the trader is needed here in order to be able to distinguish between correction and inertial price movement from the main trend direction. In this review, you will learn about what price levels are and trading strategies for them, as well as get acquainted with practical tactics based on combined indicators.
Breakout Forex Trading Strategies for Beginners
The principle of building any, even the simplest forex strategy is to find some pattern. And no matter, we are talking about fundamental or technical factors. An example is an entry into the market after the occurrence of certain events (publication of news) or at the intersection of any indicators. In a separate group, strategies based on the breakdown of an important level or channel can be distinguished. The second option for interpreting such strategies is to return to the channel after a rebound from its boundary or a rebound from a significant level. The difficulty of trading with such strategies is to determine whether the price will break the level or turn around. That is, determine the strength of the trend. In this review, you will learn how to do it, about
What are levels and how to build forex trading strategies for beginners based on them
The psychology of channel and level Forex strategies is that the behavior of traders in certain situations is the same and trading with the majority is very effective. The principle of psychology is as follows:
- Each person counts on a certain amount of profit and each trader has his own risk limit. This is reflected in the fact that traders set stops and take profits at certain levels, and in most of these levels coincide. So there are strong lines of resistance and support. Support is the level below which the bulls do not allow the price to fall, resistance is the level above which the bears do not allow the price to rise. The essence of the strategy is to open a deal in the opposite direction when the price reaches a level, that is, on a rebound towards a reversal.
- The breakdown of the level means that there was some fundamental factor that prompted most traders to open positions even when the price reaches a psychological mark. That is, if the rebound did not occur, then we can talk about the appearance of a strong trend.
Both of these trading ideas are well illustrated by the cryptocurrency capitalization chart.
During the month, the price was between the levels of “200” and “225”. Despite the fact that touching the borders did not occur, quite smooth movements from the lower border to the upper one and vice versa are visible. Arrows indicate successful moments of entering the market (the price chart of top cryptocurrencies coincides with the capitalization schedule). After the breakdown of level 200, the price touched the next psychological mark “175”, after which it stayed for a while in a narrow corridor. The second yellow circle marks a new breakdown and the emergence of a strongly falling trend.
The difficulty of trading is to understand whether a breakdown of a level has occurred or if the price has passed forward by inertia and is now turning around. Therefore, there are several recommendations:
- Do not rush to open a deal in the opposite direction if the price touched the target mark. Wait for either a U-turn or continuation of the movement and subsequent correction.
- Take your time to open a deal if the price reverses without touching the level. It is possible that this is not a reversal, but a temporary pullback, after which the price will continue the main movement again.
- Pay attention to the nature of the trend and the angle of its movement. If for a long time the angle was small, after which there was a sharp change, this is a signal to open a transaction. An example of such a situation on the chart above (first yellow circle).
Types of levels in Forex:
- Fibonacci. This is a numerical infinite sequence built on a mathematical approach. As practice shows, traders adhere to these levels intuitively. You will read more about their nature and application in this article. Calculate the value of the Fibonacci levels will help the calculator .
- Psychological. These are levels that are built on human psychology, chosen intuitively. Example: round numbers.
- Historical. Strong levels that repeat at a certain frequency are clearly visible in a long time span.
- Mirrored. The levels that the price breaks through, return to them after correction and again goes towards the main movement. The resistance level thus turns into a support level.
- Pivot. Levels that are based on statistics of opening and closing prices. I’ll tell you more about them in one of the strategies below.
Channel (dynamic) levels are similar with the only difference being that the boundaries of the channel are represented by flexible lines. There are many channel indicators and it cannot be said which one is more or less accurate. Much depends on the current market situation and settings. I will introduce you further with practical examples of such indicators.