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High/Low Channel Trading Strategy

High/Low Channel Trading Strategy

The High/Low Channel trading strategy is based off the 15-minute, 30-minute or 1 hour charts. It is therefore not suitable for the ultra-short binary options such as the 1 minute, 2 minute or 5 minute option. This strategy is based on following the trend of the channels by setting up trades off the channel lines that support the trend move. In other words, you trade off the channel support line in an upward trend, or off the channel resistance line in a downward trend.

Tracing the channel is essential to the success of the strategy. The trace must start with the lows in an uptrend, and with the highs in a downtrend. The initial channel line must touch at least two price highs/lows, and when the trace is extended to the opposite side, should also touch at least two price areas.

At the end of the trace, the trader will have a trading line that extends into the future, which will provide the basis for trades until the price leaves the channel.

Setting Up the Chart

You can use charts from MetaTrader or from Tradingview or any other good interactive charting software. The charts are setup as follows:

  • The Indicator: Attach the Channel tool in its defaults setting to the chart. Perform the trace as described.
  • Time Frame: 15 minutes, 30 minutes or 1 hour.
  • Can be traded with any asset.

Visually identify a section of the chart where price is trending up or down, then apply the channel tool and see if this channel will fit the highs and lows as described above.

“High” trade

The High trade is used to benefit from upward price movements and is setup as a bounce trade off the channel support line when prices are trending upwards. The following parameters must be met in initiating the HIGH trade:

  • A) Visualize an area where prices are trending upwards, then apply the channel tool in such a way as to touch two price lows (shown as points 1 and 2 on the chart). Extend the channel tool to the price highs and also ensure it touches two price highs (3 and 4).
  • B) Wait for a bearish candle to touch the channel’s lower line (support line), and close above it.
  • C) If (b) has been satisfied, initiate the HIGH trade off the support line and select an expiry time that is at least the same as the time frame of the chart. For instance, if the time frame used for the trade is 30 minutes, you should select an expiry time that is a minimum of 30 minutes.

These conditions are displayed in the chart that we have shown below:

This setup is based off a 1-hour chart and reveals that the upward channel actually provided a minimum of three trading opportunities for the HIGH trade. The trace of the channel was able to identify two price lows, which provided the basis for future trades. In this example, the day provided three trading opportunities which would all have ended in profit. The essence of using channels that show direction means that you can get profits from properly executed setups.

“Low” trade

The “Low” trade is used to benefit from downward price movements and is setup as a price rejection off the channel resistance line when prices are trending downwards. The following parameters must be met in initiating the LOW trade:

  • A) The trader visualizes an area where prices are pointing downwards, then apply the channel tool in such a way as to touch two price highs (shown as points 1 and 2 on the chart). Extend the channel tool to the price lows and also ensure it touches two price low points (3 and 4).
  • B) Wait for a bull candle to touch the channel’s upper line (resistance line), and close below it. In essence, ensure the candle does not break the resistance; else the trade is rendered invalid.
  • C) If (b) has been satisfied, initiate the LOW trade off the resistance line and select an expiry time that matches the time frame of the chart. For instance, you should select an expiry time that is a minimum of 1 hour if the time frame chart is a 1-hour chart.

These conditions are displayed in the chart that we have shown below:

The snapshot shows the channel reference points 1,2 (highs), 3 and 4 (lows). Only one successful trade could be setup on the chart, as price action that followed never got off to the price channel resistance line on which a LOW trade could be setup.

Expiry Time

The expiry time for each trade is also a critical component of the trade strategy. The strategy with expiry times is to allow enough time for the trade candle to move into profitable territory. Several binary option platforms have various policies for expiration times. Some allow traders to set their own expiry times, while others provide a list of available expiry times from which traders can make a choice. The 15-minute, 30-minute and 1-hour expiration times are available for use within the context of these two scenarios.

All setups described above should be practiced on a demo account before being used on a live account.