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I know of two systems. One is based on trading inside the triangle, on reflections from its sides. The other, more common, is based on breaching its sides and trading in the direction of the breach. Which system are you talking about?
I was talking about trading on the breakout of the channel formed by the outside bar:
But, as the situation is extremely rare with a single bar, a group of bars - 2...4 bars as the outer bar - is usually used.
It is calculated on the fact that the probability of the price reaching one of the trend ends is insignificant.
And the bar or the group of bars forms the channel. Work on the breakthrough of this channel.
It was about trading on a break in the channel formed by the outside bar:
But, as the situation is extremely rare with a single bar, a group of bars - 2...4 bars as the outer is usually applied.
The assumption is that the probability of the price reaching one of the trend ends is insignificant.
And the bar or the group of bars forms the channel. Work on the breakthrough of this channel.
I am not familiar with this system. I will try to summarise it and you can correct me. So
1. Observe a sharp up or down movement (this is our outer bar or a group of 2-4 bars). It can be measured by the momentum.
2. We draw horizontal parallel lines of support and resistance and wait for their breakdown.
Right? What is considered to be a breakdown? Closing outside the channel? There will probably be a lot of false breakdowns.
By the way, why should a channel start with a sharp price movement and not just a high-low over a period of time?
ZS This is for the picture from 21:52
In electronics, similar pictures illustrate processes
As I say, such systems are not fully formalised, so there is little point in discussing them.
Imagine that we are trading on a channel breakout. Suppose we apply some wild method like martingale with doubling of lots.
Our task is to avoid a large number of fluctuations and abrupt growth of lots in the channel. To do this, we must correctly select the channel levels.
The levels must be such that the probability of price reaching them is as low as possible. But the size of the channel must be within reasonable limits.
What level is the least likely to be reached by the price in the near future? One that it has moved away from very quickly. If it did, it must have had a good reason.
I'm not on Skype much anymore. I'm addicted to it like a drug, now I'm weaning myself off it :)