How to trade an ascending channel

  • 16 May 2017
  • By Trading Central
  • Topics: FX

An ascending or bullish price channel is made of two parallel lines: the basic rising trend-line (lower end of the channel) and the channel line or return line (upper end of the channel). The price channel is assigned to the category of «continuation patterns» and remains valid until either the trend line or channel line is broken. Looking at the Euro futures below, we have identified a previous ascending price channel and we will demonstrate how to implement a trading strategy for this setup.

ADAPTED OPTION STRATEGY: BULL CALL SPREAD

As the upside potential is limited by the 1.091 resistance level (Upper end of the ascending channel), a bull spread allows you to lower the cost of the strategy (in comparison to a straight long call) by selling a call out of the money. As a result, the strategy consists of the simultaneous purchase of a call with a Strike at 1.06 and selling a call with a Strike at 1.09 for a net debit.As the upside potential is limited by the 1.091 resistance level (Upper end of the ascending channel), a bull spread allows you to lower the cost of the strategy (in comparison to a straight long call) by selling a call out of the money. As a result, the strategy consists of the simultaneous purchase of a call with a Strike at 1.06 and selling a call with a Strike at 1.09 for a net debit.

BULL CALL SPREAD: Leg 1

Trading Symbol 6E M7
Option Type CALL
Option Strategy BUY
Strike 1.06
Expiration June 2017

BULL CALL SPREAD: Leg 2

Trading Symbol 6E M7
Option Type CALL
Option Strategy SELL
Strike 1.09
Expiration June 2017

ADAPTIVE FUTURES STRATEGY

Trading Symbol 6E M7
Strategy LONG
Entry Point 1.069
Target 1.091
Stop Loss 1.06
Contract Expiry June 2017

SYMMETRICAL TRIANGLE BREAKOUTS: CL SEPTEMBER 2016

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 1.091 is calculated by using either the next major resistance level inside the bullish channel or the upper end of the channel.

POTENTIAL DOWNSIDE PER CONTRACT

If the price fails to accelerate to the top of the channel and falls below the rising trend line support, the position is closed.

Ascending channels happening in the markets now

GC

ZN


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