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Channelling can be very rewarding, but only when there is logic to where the channel begins and where it ends. It is important for an experienced trader to be aware of how a channel can be traded when participating in binary options trading in order to enjoy maximum profits and more successful trades. Buying into support or selling into resistance is the best method to choose, and when you are participating in binary options trading, this means that you should purchase put options into resistance and purchase call options into support.
Trading binary options is never simple, as it is important to not only identify the ideal striking price but also the perfect expiry date. The combination of time and price is essential in the successful trading of all financial products.
How to Project a Channel
To project a channel effectively, the first step is identify a trend. It is possible to spot a trend if you observe a series of lower highs being produced with the market then breaking the previous lows. This forms the start of a trend, and when this is observed, a trader should draw the trend line from the 1st high, dragging it through the following lower high, projecting it out to the right of the chart. This will form the main trend line and is the ideal place to trade put options whenever the line is retested.
When building a channel, it is essential to copy and paste the trend line onto the lowest level which appeared after the first high. The classic interpretation stands here, i.e. a bullish channel is ideal for purchasing call options each time the channel’s lower side is tested and a bearish channel is ideal for purchasing put options whenever the upper side of the channel is tested.
How to Use the Channel to Your Advantage
One way to use your channel to your advantage is to look out for the 50% retracement level and use it as a pivotal one i.e. once it has been broken, this should be used as the resistance/support level for the option until the channel’s opposite side is reached.
In Elliott Waves Theory, it is only possible to form a channel in corrective waves as there are no channelling impulsive moves. The two types of corrective wave that channel the most are the triple and double zigzag patterns as they have to end at the lower/upper side of the channel depending on whether the correction is bearish or bullish. There is a catch to the Elliott Waves Theory, however, as the market will not always move within the lower and upper sides of the channel, i.e. the price may travel above or below them. However, it must end at the support or resistance that is given by the channel’s opposite side. That means that a trader should buy call options if the market tests the channel’s lower side and put options when it tests the upper side of the channel.
If the price breaks a channel once a double zigzag has been formed, a trader can expect a triangle to be formed as part of a triple combination.
A channel is always implied in the case of a strong trend, however it can be tricky to build one if the move has an abrupt start. It is, however, possible to overcome this using Fibonacci levels and the Pitchfork tool. This tool is based on 3 pivot points which will reveal two equal channels projected to the right of the screen with 3 equally distant lines. A trader should use the middle line to find the striking price with the other 2 lines acting as resistance or support levels.
Other educational articles
- Elliott Waves – The Implications Of A Running Correction To Reduce The Risk Of Painful Trading
- Elliott Waves Analysis Really Works – Complex Corrections Patterns Included
- Trading The Apex Of A Triangle For Profitable Binary Options Trading
- Trading 1st Wave Extensions In Binary Function
- Channelling With Impulsive Moves: Elliott Waves Simple Trading Theories Leverage Your Profit In Binary Options Trading
- Confirmation Stages To Be Taken Using Elliott Waves Theory Once Corrective Waves Are Identifiied
Recommended readings
- “Profit Locking And The Relative Price Channel.” Wilson, Leon. TECHNICAL ANALYSIS OF STOCKS AND COMMODITIES-MAGAZINE EDITION- 26, no. 1 (2008): 18.
- Enhancing the Raff Regression Channel. McKinnon, R.B., 1998. TECHNICAL ANALYSIS OF STOCKS AND COMMODITIES-MAGAZINE EDITION-, 16, pp.90-96.
