Forex Channel Breakouts

Forex channel breakouts are one of the best trading strategies a Forex trader could hope for. The chart above is a daily one for the AUDCAD (Australian Dollar against the Canadian Dollar), so every candle represents an entire day of price action. The chart goes from eary December of 2015 through July of 2017. In that time, this pair has made 6 distinct channels, each one providing opportunities for anywhere between 500 and 1,000 pips. That is about 4,000 pips in the 20 months the chart covers, assuming you traded only the channel breakouts. If you also traded the trend line breaks within the channel, that pip figure could be 3 times that, for about 12,000 pips. That’s an average of 600 pips a month, or US$6,000 if trading full lots.

Of course, no one says you need to trade just one pair, this strategy can be applied to any pair that is channel bound for extended periods. And you’ll find that most do present these opportunities. Learning to see these channels on a blank chart isn’t an arcane or complicated practice. It’s an easy enough skill to learn, drawing parallel lines, and very lucrative. Don’t forget that as these trades evolve, you can and should multiply your pip profits by trading within the channel, as price bounces from the bottom of it to the top and back again for as long as the channel holds. You manage this by drawing trend lines within the channel and trading the breaks, much as you trade the channel breakouts on the longer time frame.

Intrachannel Trend Line Breaks Shown in Green

Go to your charting software now, pick a currency pair, and select D1 so you get daily candles. Zoom out so you are seeing about 20 months, like in my example. See if you can identify the channels, as well as whether it is currently channel bound or has broken out. Draw them for reference. Use the inner trend line breaks for entries and exits within the channel, as well as the channel itself to set your stops. Setting a limit is not mandatory so long as you are monitoring your trades, which you should regardless. Instead of a limit, exit a profitable trade when the trend line is pierced, or when it reaches the top or bottom of the channel. Waiting for the trend line break, however, allows you to still be in a trade when the channel has a breakout, making that much more profit for your account. Practice this one! It will become a valuable addition to your toolbox.

The best and most profitable strategies are often the simplest.

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Founder and Director of Special FX Academy, Andres is now a full time trader, mentor, and writer. In the past, Andres has held director level positions at venerable trading exchanges including New York Stock Exchange, Euronext, and Fannie Mae. Buy his Forex Trading book here!

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