Trading Bearish Channels

  • 6 Jun 2017
  • By Trading Central
  • Topics: FX

A declining or bearish price channel is made of two parallel lines: the basic declining trend-line (higher end of the channel) and the channel line or return line (lower 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. Range-bound trading is a strategy that identifies major support and resistance levels in which a trader can buy the asset class at the lower level of support (bottom of the channel) and sell them near resistance (top of the channel).

ADAPTED OPTION STRATEGY: BEAR CALL SPREAD

A bear call spread allows you to collect premium in a volatile bearish market. It is a net credit spread that is profitable as long as prices remain below the stop-loss. As a result, the strategy consists of the simultaneous sell of a call with a Strike at 1.3 and buying a call with a Strike at 1.305 for a net credit received.

Bear Call Spread: Leg 1

Trading Symbol 6B M7
Option Type CALL
Option Strategy SELL
Strike 1.3
Expiration June 2017

Bear Call Spread: Leg 2

Trading Symbol 6B M7
Option Type CALL
Option Strategy BUY
Strike 1.305
Expiration June 2017

ADAPTIVE FUTURES STRATEGY

Trading Symbol6B 6B
Strategy SELL
Entry Point1.2975 1.2975
Target 1.294
Stop Loss 1.3
Contract Expiry June 2017

TRADING BEARISH CHANNELS: 6B MAY 25TH 2017

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

A target of 1.294 is calculated by using the lower bound of the channel or significant recent low.

POTENTIAL DOWNSIDE PER CONTRACT

If  the  price  fails  to  gather  downside  momentum  and breaks above the 1.3 stop-loss, the position is closed.

Bearish channels happening now

ZW N7

6C


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