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The Equidistant Channel represents two parallel trend lines, which are the support and resistance lines for the price. The Equidistant Channel represents an inclined trading range with the lines connecting the highest and lowest prices.
Building
Moving along the chart, the price forms highest and lowest points that can form trend channel. To build equidistant channel, you need:
- Determine direction of Forex trend
- Indicate width of channel
Prevailing tendency is defined by a trader. If trend is upward, the line should be built along two lowest points (bottom – bottom). In case of downward trend, the line is built along two highest points (top - top)
Parallel line is built as distant as possible from the trend line. The result will be equidistant channel within the borders of which fluctuation of currency rate takes place.
To build such a channel in MetaTrader 4 trading terminal, choose “Insert – Channels - Equidistant”.
Building
Moving along the chart, the price forms the highest and lowest points that can form a trend channel. To build the equidistant channel, you need:
- Determine direction of a Forex trend
- Indicate a width of the channel
A trader defines a trend by him or her own. If the trend is upward, the line should be built along two lowest points (Low – Low). In case of the downward trend, the line is built along two highest points (High - High).
A trader builds the parallel line as far as possible from the trend line. The result is the equidistant channel. The fluctuation of currency rate takes place within its borders. To build such a channel in MetaTrader 4 trading platform, choose Insert – Channels - Equidistant.
Image 1
We put the initial point on any extreme point (High or low), the second point – on the extreme point following to the first correction or just on the most distant value of the price. Then we indicate a width of a channel as per above-mentioned guidance. We have a trading channel now, which lines are potential entrance points. The upper line is the resistance and the bottom line is the supportive.
Img. 2 – Ascending Equidistant channel
How to build a channel trading system on the base of the Equidistant Channel?
If the trend is ascending, overrun of the price beyond channel is considered to be temporary, soon the price expected to return to the channel. Break up of the upward channel down means the trend has stopped and the reversal is possible.
If the trend is descending, everything is opposite: overrun of the price beyond the channel downward is considered to be temporary, soon the price expected to return to the channel. Break up of the downward channel up means the trend has stopped and the reversal is possible.
Conclusion
The idea of the equidistant channel is the implication of zigzagging price line within the range of borders (parallel lines). By having the determined trend at the earliest stages, this channel trading strategy can greatly improve entrance points.
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