Channels

Channels are widely used by traders all over the world. When looking at a correction for example, and you are have an a and b waves structure, it is a well known fact that if you take a trend line and connect the recent low ( in the case the trend is to the downside and the correction is to the upside) with the end of the b wave and project that trendline from the end of the a wave (first corrective wave), you are building basically a channel in which price most likely will evolve during the whole corrective move, more or less respecting the upper and lower trend lines.

However, traders tend to miss one important aspect when using channels, and this is related to the distance of the channel, in the sense of the amplitude between the upper and lower boundaries of the channel. In order to avoid this mistake, whenever looking at a channel measure that amplitude an look for the fifty percent retracement level and draw a parallel line for it. This line, the so called fifty percent line has the tendency to attract price, acting as a support and resistance in the same time. The principle of former support turning into resistance, and former resistance turning into support applies here as well, and this can be very useful when trading binary options. Imagine a channel on the five minutes chart and you are trading sixty seconds options based on the fifty percent line, as this would be the most appropriate type of option to be traded on such a time frame and the opportunities for the option to expire in the money looking for the main support and resistance levels are quite high.

The recordings that come with this chapter will deal with a couple of examples showing you how to build a channel on the lower time frames and how to treat it when dealing with binary options as the product to be traded.

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