As you know I love to trade by using trend channels. Some times we se a bread of a channel and we should start looking for trades in the opposite direction in a new trend channel. The main rule is that to draw a trend channel you need three points. In a bull trend channel you need to support points in the bottom of the channel and one in the top. This could look like this
Here you see the three points that could be used to create a channel when the price breaks up through the bear channel. When we have drawn the channel we just need to wait for the price to go up, go down again and to form some sort of entry in the bottom half of the channel.
The problem is that there can easily be a good entry before that, but we don’t get in since the channel hasn’t been formed yet. Here we need a little tool that not many traders know of.
The regression channel
The regression channel is taken from the world of statistics where the term regression line is well know. I’ll not explain it further here but just let you know of the term. Then you can search it your self. But in Tradingview you can press the icon for a regression channel (upper arrow in the chart below) and pull the channel into the chart. Now it creates a channel made of a regression line and to line on +/- 2 standard deviations (also used in the Bollinger bands). This gives us a very effective channel where we can look for a good long entry (in this case) when we are in the bottom of the bull channel. To make sure the bull channel is healthy I also like the RSI to stay above 50.
To time my entry I look at the 4-hour chart and look for at break up through the 50-line on the RSI. I also would like a bullish trend line break on this chart.
I set my Stop loss below the latest price swing (often 80-100 pips away) and my target is around 2-3 times my risk. But this can be moved upwards if the price hasn’t reached the top of the regression line.
Try to experiment with the channel your self. I know trades that only trade with the regression line and maybe a single RSI that have been profitable for years. Good luck and good trading.