There are lots of ways to enter the market during a reversal…
One is a break of a counter trendline. Another is the break of a channel structure.
What’s the difference between the two of them? Let’s chat about that a bit…
A trendline is defined as a line connecting two or more candle tops.
On the other hand, a channel requires identifying the support and resistance levels of a given area.
Both approaches are valid, but they are different. Keep that in mind…
Two Sides to a Price
When you create a channel structure, you need to be conscious of both sides of the structure.
When you draw a trendline, you’re only isolating one side of the price action.
Many folks assume that you need to structure your channel starting at price bottoms when the market is in an uptrend and you need to structure your channel starting at the price tops when in a downtrend.
That’s not necessarily true. However that is how you would draw your trendline for a countertrend break.
There are many instances where you’ll need to identify your up channel by connecting the price tops rather than the bottoms, and it’s just the opposite for the down channel.
The idea behind utilizing a channel is identifying the best form of support or resistance, then duplicating that trendline and applying it to the other side of the price action.
I’ve built out a simple example of a few channel structures on NVIDIA Corporation (NVDA) for you below…
In the chart above, you can see an up channel, complemented by what is called a full channel extension, along with a change in direction channel identified by the blue structure.
You can see just how quickly this image offers you a roadmap to follow.
Dial It In
When price action settles above or below any one of these structures by 1%+ on a weekly basis, there’s an 80%-90% likelihood that it will trade towards the next channel, according to my research.
When the trade is favoring the trend, the reward should grow with time, and the risk should diminish.
When the trade is counter to the trend, the reward should diminish, and the risk should increase with time.
In order to trade within these channels, you’d need to dial in the timeframe in order to identify smaller channels and, upon them being broken, they could be traded as well.
No one knows how to do this better than my good friend and professional trader Josh Martinez, who uses a similar technical approach inside of his entry level futures trading service, Futures War Room.
Josh is one of the greatest futures traders I know. We often bounce ideas off of each other as we analyze the market.
He describes his futures trading strategy as possibly “the world’s most profitable side job”…
This strategy helped Josh turn an initial deposit investment of $500 into $39,282 in less than two years.
All you have to do is access a little-known portal in your brokerage account and start copying Josh’s strategy — step by step, and trade by trade.
It really is that simple.
Rules to Live By
“You can never get a cup of tea large enough or a book long enough to suit me.” C.S. Lewis
Until next time, I wish you a beautiful and blessed day!
Yours In Trading Success,
Anthony Speciale Jr.