A Channel is formed when we draw a trendline and then a line parallel to the trendline with most of the price action if not all falling between the two lines. By scanning through a few charts, you will find that it is easy to identify channels. Channels occur frequently.

However, currencies rarely stay in a narrow range for long and have a tendency to breakout from a tight range and develop a strong trend in the market. Important economic news releases can act as a trigger for a breakout.

Before the release of an important economic data figure, currencies start trading in a narrow channel as traders adopt a wait and see attitude. On the economic news release, breakout takes place. Similarly, before the start of the trading session like the Euro or the US, currencies often trade in narrow channels.

You can use this channel breakout strategy on intraday charts like the 5 minutes, 15 minutes, 30 minutes as well as on daily charts before the announcement of some important economic release.

Enter long when the price action breaks above the upper channel line with a stop loss placed just below the upper channel line. Use a trailing stop as the price moves in your favor.

In case, the breakout takes place in the down direction, enter a short trade with stop loss above the lower channel line and use a trailing stop if the downward move continues.

You can use another version of this Channel Breakout Strategy by entering both long and short entry order 10 pips above the upper channel line or 10 pips below the lower channel line.

Now, in case of a breakout in the upward direction, long entry order will be triggered. Place stop loss immediately 10 pips below the upper channel line and use a trailing stop in case the upward move continues.

On the other hand, if the breakout is on the down direction, your short entry order will be triggered. Place a stop loss 10 pips above the lower channel line. If the market move in the down direction develops into a major move, use a trailing stop.

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