Trading using price channels (referred to as channel trading) is a simple and effective trading method, which is suitable for both new investors and investors of different levels. Price channel transactions are characterized by simplicity, flexibility, and ease of planning. Master this trading method and insist on using it correctly, and you will have a "skill" in investment.
01
The concept of the price pipeline
1. The formation and elements of the price pipeline
In the K-line or bamboo line price chart, the price objectively shows various price patterns, such as triangle, flag, rectangle, wedge, head and shoulders, W, arc, pipeline, V shape...and so on, the price pipeline shape is one of the most common ones.
A price pipeline is an objective representation of price in a graph. The price pipeline elements include three elements: the upper pipeline line (the AB line segment in the figure), the lower pipeline line (the CD line segment in the figure) and the graphical trajectory of the price movement. The price trajectory is an integration of market behavior and charting techniques, while the upper and lower pipelines are the product of technical processing based on actual price turning points.
Upper pipeline: In the descending pipeline, the upper pipeline is a price pressure line determined by two or more (including two) adjacent high points, as shown in Figure 3, the upper pipeline AB is composed of two points D1 and D2 pressure line. In the ascending pipeline, the upper pipeline line is a parallel line parallel to the lower pipeline line through a certain high point (the high point selected by the pipeline manufacturer according to the rules), as shown in Figure 1, the upper pipeline line AB passes through the high point D2 and the support line CD parallel.
Downpipe line: In an ascending pipeline, the downpipe line is a price support line determined by two or more (including two) adjacent low points; in a downpipe, the downpipe line passes through a certain low point. selected low point) parallel to the upper pipe line. In horizontal pipelines, after the first pipeline line is determined (upper pipeline line or lower pipeline line), the second pipeline line (upper pipeline line or lower pipeline line) must be parallel to the first pipeline line.
The price pipeline pattern shows that during the period of price pipeline development, the high and low price turning points of the market price progress are restricted by the pipeline line, and this nature is the basis for pipeline transactions.
2. Price pipeline level and classification
Price pipeline level: The price pipeline is an objective form of market price development, which repeats in a similar form in different time periods, and the pipeline type has different time levels. That is, there are time-sharing pipelines, daily pipelines, weekly pipelines, monthly pipelines, etc.
Time-sharing pipelines exist in time-sharing charts, daily pipelines exist in daily charts, and so on. Different pipeline levels have, are or will depict the price trajectories of different time spans in the market, providing a basis for investors to design different investment cycles such as short-term, mid-term, and long-term.
Classification of price channels: According to price fluctuations, price channels can generally be divided into three categories: ascending channels, horizontal channels, and descending channels. An ascending channel indicates that the market price is in an upward trend during this time period, a horizontal channel indicates that the market price is undergoing horizontal consolidation, and a descending channel indicates that the market price is in a downward trend.
Obviously, the price channel category's objective expression of the price trend provides investors with an indication of what they should do next.
3. The practice of price pipeline
The price pipeline is composed of upper and lower pipeline lines, and the way of pipeline lines follows the principle of determining the upward trend line and the downward trend line in the Dow trend theory. The practice of different types of pipelines is different, but the principle of drawing lines is the same, that is, when the first pipeline line is determined, the second pipeline line must be parallel to it.
The method of ascending pipeline: first make the lower pipeline, then the upper pipeline, (see Figure 1) draw the lower pipeline (CD) through the two low points of D1 and D3, and then draw the lower pipeline with D2 (high point). The pipe line is parallel to the upper pipe line (AB).
The method of descending pipeline: first make the upper pipeline, then the lower pipeline, (see Figure 3) draw the upper pipeline (AB) through the two high points of D1 and D2, and then draw the upper pipeline line (AB) with D3 (low point) The pipe line is parallel to the lower pipe line (CD).
The practice of horizontal pipeline lines: there is no order for the upper and lower pipeline lines, which mainly depends on the order of two adjacent and similar high points and two adjacent and similar low points. If the former appears first, do the upper pipeline first and then the lower pipeline, and vice versa if the latter appears first.
02
Price Conduit Trading Method
The price channel trading method is simple and clear. Specifically, it is to implement buying and selling operations according to the nature of the channel line supporting and blocking the market price. According to different risk preferences, pipeline transactions can be divided into two methods.
1. The trend-following trading method
Applies to both ascending conduit trades and descending conduit trades. The basic trading idea is to only open new positions following the trend of market prices, and close positions when the price operation encounters the obstruction of the pipeline. As shown in Figure 1, when the price rise pipeline is drawn through D1, D2, and D3:
When the price returns to point M1, buy and open positions;
When the price rises to point S2 of the upper pipeline line, sell and close the position;
When the price returns to the M2 point of the lower pipeline line, buy and open positions again;
When the price rises to point S3 of the upper pipeline line, sell and close the position;
In this way, use the rising channel to repeatedly trade with the trend.
The operation method in the descending channel is the same as that in the ascending channel, the difference is that the trading direction is opposite.
This trend-following trading method is characterized by being more stable, with a higher probability of success and less risk, but the trading opportunities are relatively reduced, and the investment income obtained in the same market cycle may also be less, which is suitable for more stable investors.
2. Two-way transaction method
It is suitable for all kinds of price channels, especially for transactions of horizontal price channels. The basic trading philosophy is not to lose possible trading opportunities, strive to efficiently use price channel trading information, and ignore market trends.
For example, in Figure 1, after the ascending pipeline is drawn through D1, D2, and D3, when the price rises to point S1 of the upper pipeline line, the operation of selling and opening a new position is performed, and when the price falls back to point M1 of the lower pipeline line, the position is closed. Buy and open a new position at the same time as the sell transaction, and when the price rises to point S2 of the upper pipeline line, close the position and close the buy transaction while doing a sell and open a new position operation, thus using the price pipeline to conduct two-way repeated transactions.
This two-way trading method is very active. If you cooperate with the stop loss plan, you will get more trading opportunities and may get higher returns. But at the same time, there are more risks. It is suitable for those who are more active and strong in risk tolerance. investor. This trading method has high application value in horizontal pipelines.
03
Matters needing attention in price channel trading
1. Inspection of price channels
The performance of the price channel in the market process is different, and it is closely related to the strength of the market trend, whether there is a trend in the market, and the activity of market transactions. For example, in a super market trend, there is generally a lack of short-term price channels. At this time, the research and application of price channels need to be investigated in a longer time span.
For another example, when the market is extremely active or when the bulls and the bears are fighting each other, there is generally a lack of short-term horizontal price channels. The research and application of horizontal price channels also need to be investigated in a longer time span.
2. Do a good job of planning before trading
Experienced investors can tell at a glance that the weakness of the pipeline trading method is that it cannot solve the price crossing problem by itself. That is, what should a trader do when the price penetrates the lower channel line downward or the upper channel line upward?
Plus, pipeline deals don't address the money management issues that determine an investor's long-term survival in the venture capital market. Therefore, the pipeline trading method must make a good investment plan before the transaction. Its approach is:
1) Use price channel information to solve the problem of when to buy and sell and when to stop loss in the trading plan;
2) Use the theory of fund management to solve the problem of fund allocation in the plan;
3) Overcome your fear and execute your trading plan.
The pre-transaction plan is the basic condition for the efficiency of the pipeline trading method to be brought into play, but whether the pre-transaction plan can be fully implemented is a key and decisive step for the pipeline trading method to obtain investment returns for investors. Good methods and good plans are theoretical, just things on paper, and their value must be created by the behavior of investors.
Remember: A method not used is no method, and a plan not implemented is no plan.
Practical experience tells us that the reason why investors cannot execute trading plans is because they have fear in the face of market risks. Once investors are affected by fear, any trading plan and trading discipline will be wiped out. Therefore, like the application of other trading methods, the pipeline trading method requires investors to overcome their fear first to ensure the execution of the trading plan.
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Last updated: 09/11/2023 01:17
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