Beginning traders use the simplest and most straightforward trading strategies for trading. Simple and understandable is trading on price channels. Considering the fact that beginners do not know how to correctly build channels on price charts, they try to use Forex channel indicators.
MT4 Channel Indicators
MT4 trading terminal has ‘regular’ channel indicators that can be effectively used in trading. A trader chooses which indicator is most convenient for him to work with according to his strategy.
Bollinger Bands (Bollinger Bands)
This indicator is quite often used by traders, despite its simplicity. It consists of three moving averages, the lower and upper ones form a channel equally distant from the middle line, which is an ordinary moving average with a period that can be changed in the settings. By the slope of the indicator lines we can judge the presence of trend movement, if the lines are horizontal, we can say that the price is moving flat.
Usually, trading positions are opened depending on the slope of the lines and the price near the lower or upper bands of the indicator. It is up to the trader to decide when to close the trade. Many close the order when the price reaches the middle band, some wait for the price to touch the opposite border of the channel. Everything depends on the specific market situation.
The linear regression channel
This is a handy indicator available in the MT4 arsenal. In order to build a linear regression channel, it is enough to drag it with the mouse on the chart and define the beginning and end of the channel to be built. The indicator will automatically build the channel, taking into account the maximum and minimum price values for the marked period. The boundaries of the built channel will be at the same distance from the regression axis line. By observing the interaction of price and channel boundaries, you can develop your trading strategy.
Open trades when the price bounces from the channel boundaries, fix profit when the price reaches the midline of regression or the opposite wall of the channel, if trading is conducted during flat movement.
Equidistant channel
This indicator allows you to build channels manually, by yourself. To build a channel, it is enough to connect two price maximums (minimums), then double-click on the bottom line of the indicator, points will appear on the lines and the upper line can be moved to the opposite minimum (maximum), thus forming a channel.
Standard deviation channel
This indicator builds a channel by itself when you drag it to the chart and specify the beginning and end of the period for which you want to build the channel. In some respects it is very similar to the regression channel, except that the channel borders are at the distance from the centreline set in the settings.
Keltner Channel Indicator
This indicator is a bit similar to the Bollinger Bands, the similarity is that it also consists of three moving averages. Only the principle of channel construction is quite different. The middle line is a moving average with a period of 10, and the boundaries of the channel are already built depending on the volatility of the price on this chart.
You can open trades when the candle closes outside the channel boundary, the price will continue to move in this direction. You can close the order either when the fixed take profit is reached or when the price returns to the indicator’s middle line.
Indicator Channels_v2.4
This indicator, when dragged onto a chart, draws three channels of different time frames at once. The default settings are 1 hour, 4 hours and 1 day. The older the timeframe, the thicker the channel boundary line displayed by the indicator.
Indicator Super Signals Channel
This is a popular indicator for beginner traders, because in addition to building a channel, the indicator gives signals for opening positions with arrows. In case of sideways price movement, the signals of this indicator are quite accurate. But in case of a pronounced trend movement, counter-trend signals should be ignored or confirmed by other indicators or TA tools.
Conclusion
Forex channel indicators are quite an effective tool for trading. The main principle of these indicators is to build channels and work from their boundaries on the rebound or on the breakdown of the boundary. However, you should take into account the fact that there are no perfect indicators and any signal to open a position should be confirmed by other indicators, or use additional TA tools for confirmation.