Trading within a horizontal channel.

A trading channel is formed based on the price chart of an asset. It's important to emphasize that this tool is applicable regardless of whether there is an ascending trend, a descending trend, or if the asset is moving sideways in the market. The core principle of creating a trading channel involves drawing two parallel trend lines. In my trading methodology, I use four such trend lines, and this is driven by specific strategic considerations. This allows for the differentiation of the channel into two main zones: the outer channel zone, which includes periods of price compression (known as "squeezes") and rare price touches to the channel lines, and the inner channel, which represents the area with primary liquidity and increased volatility. This differentiation between the outer and inner zones helps to better analyze and forecast price movements and make more informed trading decisions.

A trading channel is created based on asset price data and extends between the support level and the resistance level. The upper channel line connects price peaks, while the lower channel line connects price lows. This space between the two trendlines defines the boundaries of your trading channel. A trading channel provides traders with a visual representation of the trading range and the level of asset volatility over a specific time period. This allows for the analysis and prediction of price movements, assisting in making informed trading decisions. The larger the price step within the channel, the higher the potential profit. The size of the price step within the channel depends on the liquidity of the trading instrument (e.g., a coin). With more liquid instruments, the price step as a percentage of channel volatility will be smaller, and vice versa. As the liquidity of the instrument decreases, the percentage price step of channel volatility increases, meaning the channel itself becomes wider. I will provide more details about the reasons behind this phenomenon in subsequent articles.

Once a price channel has been established, identifying trading zones becomes a straightforward task. Trading within price channels closely resembles range trading, where support and resistance levels are identified for entry into trades.

Typically, traders within the channel will sell the asset when the price approaches the peaks, which serve as resistance levels. Conversely, a trader will buy the asset when the price comes close to the troughs, representing support lines. Depending on the zone in which the channel is formed (whether it constitutes an accumulation or distribution range), major players will execute logical actions, determining which types of trades will prevail.

In an accumulation zone, it doesn't matter whether it's the lower or upper part of the channel—traders will initiate "volatility waves" to encourage selling at a profit. When position accumulation within the channel concludes (particularly significant for a major market participant with a mid-price), there will be a breakthrough of resistance and a shift into the distribution zone. In most cases, this leads to the formation of a new channel or triangle for phased position selling while maintaining the price within an acceptable range.

It's understood that a considerable amount of external selling is absorbed, especially at the outset. However, it's also important to realize that a significantly larger volume is being sold. After all, the buildup or trend reversals are usually accompanied by substantial news background to create hype, enticing new buyers with the prospect of "buy today, it'll be more expensive tomorrow!" Your trading and that of a major market participant differ significantly.

When working with market channels, it is critically important to be able to navigate and determine where prices are in the accumulation zone (low cost) and where they are in the distribution zone (high cost). With this in mind, one should develop their trading strategy and, above all, focus on risk management. It's important to remember that channels often form during periods of significant volatility, even at distribution levels (sell-offs), and while profits can be extracted from such situations, it's necessary to control risks and have a clear understanding of the current market situation.

Let's return to trading for ordinary traders. Many of them consider trading channels to be a reliable tool of technical analysis for determining the direction of the trend. Ultimately, trendlines are a manifestation of traders' beliefs about the asset's value. Trading channels reflect the boundaries of this constantly changing sentiment.

It's important to realize that trading within channels essentially comes down to working with support and resistance levels. This means that traders wait for the right moment to enter the market and do not trade when prices are between these two levels.

Sideways movement within the channel indicates that the market is in a period of calm or consolidation. This often precedes the next market move. Price typically breaks out in the direction of the preceding trend.

To construct a horizontal channel on a chart, you should draw a straight line through the earliest price high and another straight line through the lowest price level over the same period of time. More accurate results are achieved on linear charts rather than candlestick charts.

It's important to understand that there are no strict rules or predefined numbers regarding the number of touches required to confirm the formation of a channel. However, most traders look for at least two upper and two lower points to confirm the existence of a channel. The more touches in the past (the volatility zone), the more opportunities for profit in that zone (repeating past movements) - and that makes sense.

Regardless of your trading strategy, it's important to always have a clear plan for entry and exit. The advantage of trading within a channel is that stop-loss levels are built around predefined support and resistance levels. However, it should be remembered that in horizontal channels, due to their clear visibility, the locations of stop-losses often become known to large market players or the exchanges themselves, which can lead to position liquidations. This should be taken into account, but with understanding and the right strategy, it can be turned to one's advantage.

Within the specified price range (when the market is in a horizontal phase), we identify the lower boundary as a support level and the upper boundary as a resistance zone, and based on these levels, we enter into trading. It's important to remember that a level represents an area around a specific price point, not just a line. In most cases, experienced traders conduct their operations with these levels in mind.

The support level, which is located at the bottom, serves as a point for buying, while the resistance zone, located at the top, serves as a place for selling assets.

🟢 The support level, located at the bottom, serves as a point for initiating purchases!

🔴 The resistance zone, located at the top, serves as a place for selling assets!

Methods for forming channels will be presented in my future articles.

There are two methods for trading in horizontal channels:

1. The first method involves creating a channel using pending orders and aligning with the market's direction by adjusting orders. It also requires active management of buying and selling on major exchanges, while on smaller ones, you can set the direction of movement.
2. The second, simpler, and safer approach, which can potentially yield more profits, is to adapt to the actions of the entity controlling prices within the channel (working with the "whale"). This method allows you to observe the market, learn, and at the same time, extract profits. The main rule is not to interfere...

It should be noted that when using the second method, you can buy and sell assets within the entire range of the channel - from its minimum to its maximum - without risk. This is the dream of many traders, and with this strategy, it becomes achievable.

There are several trading strategies for trading within a sideways market:

To increase the number of trades within the channel, you can divide the channel into two parts, the outer channel and the inner channel. This way, you'll have more trades and, consequently, higher profits. Compound interest works wonders in this approach.

I have my own trading strategy for channels that I have been practicing for a long time. Additionally, I also trade various trends using this method. This approach allows for more trades and, consequently, increased profitability. With each new entry, the overall asset value increases by a certain percentage. This also provides protection against missing out on pumps and ensures you are hedged against channel breakdowns. If you're interested in learning how to do all of this and gaining a deeper understanding, I can explain it during individual training sessions.

However, it's worth noting that this strategy has its drawbacks. Importantly, it can lock up your investments for an extended period. On the flip side, its advantages include the potential for significant profit (take-profit) and the ability to set a short stop-loss if the price breaks below the lower boundary of the horizontal channel. If the price starts moving in the opposite direction of your position and breaks the lower boundary of the horizontal channel, this may be seen as a signal to sell the asset (and you can set a stop-loss in advance). It's essential to remember that in some cases, it's better to incur minor losses early on rather than risk a more substantial loss in the future.

Being out of the market and buying an asset only if the price breaks and holds above the channel's resistance level (ceiling) is the key approach. The goal is to enter the market at the beginning of an uptrend.

One significant advantage of this strategy is that you don't need to tie up your funds in a position for an extended period. You spot a movement, enter the market, and look for new opportunities and breakouts.

In the event that the asset fails to establish itself above the channel and the price starts to fall, you sell the asset if the price breaks below the former upper boundary of the horizontal channel (which has now become support).

It's better to incur a minor loss early on if the price moves against you than to endure significant losses later. After exiting a position, you can choose to stay out of the market or continue trading within the channel. Trading within the channel is preferable to recover the losses incurred from stop-outs.

When considering entering a short position, it's crucial to do so only when the price breaks and holds below the support level of the horizontal channel. In other situations, similar to Strategy №3, it's essential to use sensible leverage and have adequate margin coverage for your position in margin trading. If the price starts moving against you, you should take similar measures as in Strategy №3, but in the opposite direction. Exiting the position should be executed when the stop level is reached, if the price returns to the horizontal channel.

Just as described in the Strategy №2, anticipate a breakout to the upside and a change in the trend direction to an upward movement. In the event that the market situation turns unfavorable and the price goes down, consider the possibility of selling assets after a breakout and price confirmation below the channel's support level.

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