The indicator plots a trend channel using the technique by Gilbert Raff.
Indicators Trend Channels is open source developed by SemkoNV member. I've done fixing errors in indicators, to fix latency.
My other products: https://www.mql5.com/en/users/hoangvudb/seller
The channel axis is a first-order regression. The upper and lower lines show the maximum distance the Close line had moved away from the axis line. Therefore, the upper and lower lines can be considered as resistance and support lines, respectively.
As a rule, most movements of the price occur within a channel, going beyond the support or resistance line only for a short time. If the price remains outside the channel longer than usual or went far enough, it could mean a change in the trend. Thus, the channel contains fairly complete overview of the aggregate price movements, which allows predicting the upcoming price movement with a high probability.
The indicator can be used in manual trading and in development of automatic trading systems.
In the context of technical analysis, a channel is when the price of an asset is moving between two parallel trendlines. The upper trendline connects the swing highs in price, while the lower trendline connects the swing lows.
In order to trade a channel, one first needs to be found. A channel consists of at least four contact points. This is because we need at least two lows to connect to each other, and two highs to connect to each other.
There are three types of channels:
- Channels that are angled up are called ascending channels.
- Channels that are angled down are called descending channels. Ascending and descending channels are also called trend channels because the price is moving more dominantly in one direction.
- Channels in which the trendlines are horizontal are called horizontal channels, trading ranges or rectangles.
Buying or Shorting the Channel:
- If the price breaks through the top or bottom of the channel, then the channel is no longer intact. Do not initiate any more channel trades until a new channel develops.
- If the price drifts between the channels for a prolonged period of time, a new narrower channel may be established. At this point, enter or exit near the extremes of the narrower channel.
During a rising channel, focus on buying near the bottom of the channel and exiting near the top. Be wary of shorting since the trend is up.
During a falling channel, focus on shorting near the top of the channel and exiting near the bottom. Be wary of initiating longs in a falling channel since the trend is down.
There may be times when other forms of technical analysis are needed to enhance the accuracy of the channel trades and verify the overall strength of the channel.
Determining Stop-Loss and Take-Profit Levels:
- If you have bought at the bottom of the channel, exit and take your profits at the top of the channel. Also, set a stop-loss order slightly below the bottom of the channel, allowing room for regular volatility.
- If you have taken a short position at the top of the channel, exit and take profit at the bottom of the channel. Also, set a stop-loss slightly above the top of the channel, allowing room for regular volatility.
Determining Trade Reliability:
Channels provide the ability to determine how likely your trade is to be successful. This is done through something known as confirmations. Confirmations represent the number of times the price has rebounded from the top or bottom of the channel.
==> These are the important confirmation levels to remember:
- 1-2: Weak channel (not tradeable)
- 3-4: Adequate channel (tradeable)
- 5-6: Strong channel (reliable)
- 6+: Very strong channel (more reliable)
Peculiarities of the calculation formula:
- The channel axis is calculated as a first-order regression at a given interval, using the Close prices.
- The standard deviation is calculated as 95% confidence area of the regression line.
- The upper and lower lines of the channel represent the boundaries of the confidence area, taking the coefficient of channel width into account.
- The indicator can be used on any currency pair and any timeframe.