Channel Trading

I'll be doing something new in parallel with the pfe/pps analysis that I'm now using as my principal tool.

It's based on a book by Courtney Smith, How to Make a Living Trading Foreign Exchange: A Guaranteed Income for Life (Wiley Trading).

He's focused on forex, but his analytical techniques are good for any liquid market. He bases them on the Turtle Trading style of trend following.


The technique uses a daily chart with two price channels: A 20-day-average-price channel and a 55-day channel. It also uses the average directional index (adx) analytical tool.

I'll be making trades using these techniques and tracking them on the Watchlist in a section called "Channel Trades".

Here is my version of the rules:

On a daily chart with 55-day and 20-day price channels and the adx . . .
Bull Entry

• Is has the price traded above the 55-day upper line (the breakout level on the breakout day)?
• If yes, then is the adx higher than on the previous day?
• If yes, then open a bull position.

Bull Exit

Exit 1:
• Has the 55-day upper line trended down or sideways for at least five days prior to the breakout day?
• If yes, then has the price closed below the breakout level for two days after breakout day?
  If yes, then exit the position.

Exit 2:
• Has the price traded 5-cents below the low on the breakout day?
• If yes, then exit the position.

Exit 3:
• Has the price traded below the 20-day lower line?
• If yes, then exit the position.

Exit 4:
• Is the ADX 40 or above?
• If yes, is the ADX less than on the prior day?
• If yes, then exit the position.

Bear Entry

• Is has the price traded below the 55-day lower line (the breakdown level on the breakdown day)?
• If yes, then is the adx higher than on the previous day?
• If yes, then open a bear position.

Bear Exit

Exit 1:
• Has the 55-day lower line trended up or sideways for at least five days prior to the breakdown day?
• If yes, then has the price closed above the breakdown level for two days after breakdown day?
• If yes, then exit the position.

Exit 2:
• Has the price traded 5-cents above the high on the breakdown day?
• If yes, then exit the position.

Exit 3:
• Has the price traded above the 20-day upper line?
• If yes, then exit the position.

Exit 4:
• Is the ADX 40 or above?
• If yes, is the ADX less than on the prior day?
• If yes, then exit the position.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.


No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.