Introduction to the Auto Trend Channel Indicator
Price Channels are scenarios on the price chart wherein price would oscillate in between two parallel lines, which can either be horizontal, ascending, or descending. Horizontal price channels are indicative of a ranging market. Ascending price channels are indicative of an uptrend, while descending channels are indicative of a downtrend.
What is the Auto Trend Channel Indicator?
The Auto Trend Channel indicator is a technical indicator which automatically identifies price channels.
It plots three lines. The topmost blue line is the resistance line. The bottom red line is the support line. The dashed middle line, which is sky-blue is the middle line of the channel.
How the Auto Trend Channel Indicator Works?
The Auto Trend Channel indicator plots channels based on the highs and lows of price within a given period. It attempts to identify a valid channel by identifying the average price and aligning the middle line with the average price. It also ensures that the swing highs are below the resistance line, and the swing lows are above the support line. This creates a channel like structure wherein price is typically within the range of the channel.
How to use the Auto Trend Channel Indicator for MT4
The Auto Trend Channel indicator allows traders to modify the number of hours in which the channel is based on. This can be modified on the “Hours” variable within the indicator’s settings.
The other settings options are basically aesthetic modifications wherein traders can change the color of the price channel’s lines.
Price Channels usually present different trading opportunities.
Traders can trade range trading opportunities based on price action showing signs of price rejection on either the support or resistance lines.
On an uptrend market, traders should trade long trades exclusively as price action shows signs of rejecting the support line. On the other hand, in a downtrend market, traders should trade short trades exclusively as price action shows signs of rejecting the resistance line.
Buy Trade Setup
When to Enter?
The Auto Trend Channel lines should slope up. Price should show signs of price rejection on the area of the support line. Set the stop loss below the support line.
When to Exit?
Allow price to cross towards the upper half of the price channel and close the trade as soon as price shows signs of a possible reversal.
Sell Trade Setup
When to Enter?
The Auto Trend Channel lines should slope down. Price should show signs of price rejection on the area of the resistance line. Set the stop loss above the resistance line.
When to Exit?
Allow price to cross towards the lower half of the price channel and close the trade as soon as price shows signs of a possible reversal.
Conclusion
Price Channels are one of the most popular ways seasoned traders trade the forex market. Seasoned traders often do this by manually plotting price channels and trading it accordingly.
Although trading price channels works, most new traders find it difficult to correctly identify price channels.
This indicator is a tool which can give traders a clue what structures can possibly be considered as price channels.
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