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Forex Training Lesson 1 - How To Trade Channels Like a Pro Essential part of Forex Training is to be able to identify and trade a channel. You have just opened your chart, you dig through the different time frames and all of a sudden you are able to make out a nice trend line in the market. You draw a line connecting the candles and all of a sudden, even better than just 1 line, you notice that there is another running parallel to it. Well done...you have just spotted your first channel. However, before you dive into the trade, there are a few rules to channel trading to adhere too: 1) Only one of the lines in your channel are actually trade-able. The line on the opposite side of the bone fide trend line should only be used as a profit target. Do not attempt to trade bounce or breaks of that line as it is not a valid trend line. 2) A valid trend line is: A line that is sloping upwards which MUST BE connected to swing lows and a line that is sloping downwards which MUST BE connected to swing highs. 3) For a channel to actually be a channel it must be the same width at all points through the channel, otherwise it is just a wedge, flag or other type of trading pattern. Please scroll to the bottom of the article to view an example of a channel. To make the lines easier to see I have moved them slightly away from the actual swing highs in the market. You will see in the above example that the 'real' trend line is the top trend line. It is a bearish trend line and so therefore it is connected to swing highs. So, now you know the 3 golden rules of spotting channels and you have seen what they look like, how do you actually trade it? A credible Forex Trading Course should teach you to follow a few simple rules: 1) Wait for price to prove to you that it is doing what you want it to do. In the case of trading trend lines and channels, placing an entry order just a couple of pips above the candle that touches the trend line may be required. Do not jump in and try to predict the Forex market but wait for the market to come to you. By placing the entry point above the candle you will create a safe zone, proving that the channel is actually bouncing therefore avoiding the many 'false' bounces and breakouts that occur with this style of trading. 2) Place your stop loss past the trend line that you are bouncing from. The actual distance that you should place your stop loss in Forex trading will be covered in another article, but for now as taster... it depends on your account balance, the time frame you are trading on, your propensity to risk, your financial goals and your overall trading strategy, to name but a few. 3) Your profit target should be just before the nearest swing. In the case of the below channel example; if you were to enter an order from the bounce of the top downwards sloping trend line, then your profit target would most likely be just before the previous nearest swing low. Why? Well, you are predicting that the market will continue moving downwards, so if it does as you are predicting, then it simply has to go past the previous swings. As you will learn in your Forex training, price doesn't move in straight lines; it moves in systematic formations of swing highs and lows. 4) You should not trade a channel bounce if the profit target is not at least the same distance as your stop loss. As you develop more professional skills from your Forex Trading Course you will make the call yourself but a sound recommendation would be to trade using a minimum of 1:1 Risk:Reward. That means that you don't risk more on your trades than you are likely to gain. 5) This type of strategy is the "Ferrari Strategy". Forex education will educate you on 2 core strategies. First is the 'Rent Paying Strategy'. This is a Forex Trading strategy that is designed to pay the bills and rent, a strategy that is based on probabilities and statistics and will provide a consistent percentage gain every single month. This type of channel trading explained here is a 'Ferrari Strategy', meaning that it is one of those trades that all of a sudden (and most of the time you not knowing why) price will just shoot up and you may gain many pips in a few moments. 6) Because it is a 'Ferrari Strategy' it is controlled by the Stop Loss. This strategy is based purely on price action, and your prediction of price action. In this example, you are predicting price to go down. So, when it does start to do so, don't exit your position. Yes, you must have an initial profit target to ensure that it is a 1:1 Risk:Reward trade but simply put, you are predicting price to go down. The last thing you want to do is exit when it proves you right. So, with this sort of strategy money management techniques using the movement of the Stop Loss to lock in profits can allow you to make generous profits from simple trades and at the same time allows the Forex market to give you all that it wants to. Please click here to view an example of a channel. Visit the Forex Training Worldwide website for more information on Forex Training or our Forex Trading Course [http://www.forextrainingworldwide.com] and our Forex training mentors. 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