How to Trade a Channel Breakout? AUD/USD Full Explanation
Good morning everyone!
✏️ In this post, we will show you an excellent way to trade a channel breakout. It applies to both ascending and descending channels, even horizontal channels (ranges).
- Of course, the first thing we need is to have the trend identified with its corresponding trendlines. In this case, in the AUD / USD, it is a downtrend. To mark it, we match the lower highs (upper trend line) and clone it at the lower lows.
- As we can see, the price remained within this channel for seven years, and finally, a few weeks ago, it was broken to the upside.
- Without a doubt, it is a movement that attracts the attention of many traders. The question is, can I buy at the breakout? The answer is clearly YES, but it is not the best position to take. There are safer and more effective ways to take a trade.
- In our experience, the best way to take a position on an instrument is under the BREAKOUT + CORRECTIVE MOVE guideline.
🔸How do you do this?
- To see it in detail, we will go to a lower timeframe (Daily Timeframe).
In addition to the bearish channel, we must have the support and resistance zones detected to have an idea of the context and the potential movement that the price can make.
- In this case, the price not only breaks to the trend line but also to the resistance zone (now support zone).
- In this way, what we will wait is a corrective movement that allows us to safely place the stop loss, and gives us a favorable risk-benefit ratio for our position.
- The corrective movement should respond to some correction pattern/figure, be it a triangle, zig-zag, pennant, flag.
- Once the situation is defined, we must think about where to place our income, stop loss, and take profit.
- The entry will be placed above the resistance of the corrective movement, the stop loss below, and the take profit at the next resistance zone. Keep in mind that you should always aim for an R/R Ratio higher than 1.5.
✏️ In this post, we will show you an excellent way to trade a channel breakout. It applies to both ascending and descending channels, even horizontal channels (ranges).
- Of course, the first thing we need is to have the trend identified with its corresponding trendlines. In this case, in the AUD / USD, it is a downtrend. To mark it, we match the lower highs (upper trend line) and clone it at the lower lows.
- As we can see, the price remained within this channel for seven years, and finally, a few weeks ago, it was broken to the upside.
- Without a doubt, it is a movement that attracts the attention of many traders. The question is, can I buy at the breakout? The answer is clearly YES, but it is not the best position to take. There are safer and more effective ways to take a trade.
- In our experience, the best way to take a position on an instrument is under the BREAKOUT + CORRECTIVE MOVE guideline.
🔸How do you do this?
- To see it in detail, we will go to a lower timeframe (Daily Timeframe).
In addition to the bearish channel, we must have the support and resistance zones detected to have an idea of the context and the potential movement that the price can make.
- In this case, the price not only breaks to the trend line but also to the resistance zone (now support zone).
- In this way, what we will wait is a corrective movement that allows us to safely place the stop loss, and gives us a favorable risk-benefit ratio for our position.
- The corrective movement should respond to some correction pattern/figure, be it a triangle, zig-zag, pennant, flag.
- Once the situation is defined, we must think about where to place our income, stop loss, and take profit.
- The entry will be placed above the resistance of the corrective movement, the stop loss below, and the take profit at the next resistance zone. Keep in mind that you should always aim for an R/R Ratio higher than 1.5.