What Is The Equidistant Channel & How To Trade With It

Equidistant Channel

The Equidistant Channel is formed by two parallel lines of support and resistance. Equidistant means “equal distance.” The parallel lines of supports and resistance are at equal distance with each other. The price remains in Equidistant Channel till it breaks support or resistance level.

What is the Equidistant Channel?

The Equidistant Channel helps in identifying the direction of the trend. It is commonly used in price action trading strategies.

Equidistant Channel has two types:

  • Ascending Equidistant Channel
  • Descending Equidistant Channel

In an ascending Equidistant channel, we can wait for the price to come at the support level and the bullish candle to go long.

In descending Equidistant Channel, the price should come at the resistance level, and the bearish candle must go short.

Ascending and Descending Equidistant Channels
Ascending and Descending Equidistant Channels

 

To identify Equidistant Channel, you need to know how to draw trend lines on the chart. The MT4 has a built-in function to draw trend lines, and it won’t be much of a problem.

Click the E symbol icon on the MT4, Then, draw a trend line by dragging and dropping on the chart. The parallel line will be automatically displayed on the chart. You can move the Equidistant Channel by pressing Ctrl + K.

Equidistant Channel icon on MT4
Equidistant Channel icon on MT4

You can leave the parameter settings according to default or adjust as requried according to your own trading style.

How to use the Equidistant Channel?

As Equidistant Channel finds increasing or decreasing trend lines, it is used in trend trading and reversal trading strategies. If the market remains within the Equidistant Channel, I would consider to use the trending strategies.

The bullish pattern appears when the price hits the support level and then moves in an upward direction, hence reaching the resistance level.

The market can take several days to reach the resistance level, but if you are a disciplined trader, you can still wait for the trade setup.

This approach is used when the market is within the Equidistant Channel, but what happens when the market breaks support and resistance levels?

In this situation, we could apply the forex breakout strategy. For this, we need to look for a break of support and resistance, and trade in the direction of the trade.

In other words, in ascending the Equidistant Channel, we need to look for a break of a support level. And, in descending Equidistant Channel, we could consider a break of resistance level.

Another way of using the Equidistant Channel is to trade on a higher timeframe (weekly or monthly). This will form a bullish or bearish directional bias.

The bullish bias appears when there is an upward trend and the bearish bias when there is a downtrend. The market has to be within Equidistant Channel for directional biases to appear.

Equidistant Channel Bullish directional bias
Equidistant Channel Bullish directional bias
Equidistant Channel Bearish directional bias
Equidistant Channel Bearish directional bias

If the market crosses the support and resistance level, we can use the breakout strategy on higher timeframes.

Equidistant Channel trading strategy

Using the Equidistant Channel, we can consider trading strategies on higher timeframes. I find it easeir to trade when I know the direction of the market for longer periods.

Also, day traders can take advantage of Equidistant Channel for a 4-hour or daily timeframe.

Equidistant Channel Buy Strategy

  • The bullish bar should hit the support level.
  • Wait for the price bar to close bullish before entry.
  • Set a stop-loss near the swing low area.
  • Exit the trade when the bullish bar hits the resistance level.
Equidistant Channel buy setup
Equidistant Channel buy setup

Equidistant Channel Sell Strategy

  • The bearish bar should hit the resistance level.
  • Wait for the price bar to close bullish before entry.
  • Place a stop-loss near the swing low area.
  • Exit the trade when the bearish bar hits the support level.
Equidistant Channel sell setup
Equidistant Channel sell setup

Equidistant Channel Conclusion

The Equidistant Channel is a helpful tool for determining the direction of the trend. It can work well with trend trading strategies. If the market crosses the Equidistant Channel, the forex breakout strategy can detect bullish and bearish directional biases.

The Equidistant Channel can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.

I would prefer to use the majority of technical indicators such as the Equidistant Channel on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels or a particular indicator value has been reached.

The Equidistant Channel is just one indicator amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.

Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.

The methods of implementing the Equidistant Channel into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the Equidistant Channel, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!