It is very important for a trader to identify whether the market is still in a trend or it is already moving within a channel. If you are unable to do that, you will find that you get stopped out quite often when trading in the direction the trend as the market is actually no longer trending but in consolidation.
Therefore I will like to take this opportunity in this post to teach you how to identify a trend channel on the higher time frame so that you will not be tricked into getting into a trend trade on the lower time frame.
Let us learn how to draw a trend channel
Do note that the trend channel consists of a upper resistance level and a lower support level. These 2 levels must be parallel to each other to constitute a trend channel.
Below is an example
Let us take a look at a chart below
On this 15 minutes chart, you can see that the price has break the trend line and most of you will have entered a SELL trade after that candle.
However if you take a look at the 4 hourly chart below, you will see that the price has actually hit a support level on the trend channel. Therefore I will enter a BUY trade instead of a SELL trade as the higher time frame will always have more strength compared to the lower time frame.
Therefore it is very important for you to always be able to identify a trend channel so that you can reduce unnecessary losing trades.
I hope that you guys can understand the concept of trend channel and you will be able to make more profits in trading.