The Equidistant Channel is formed by two parallel lines of support and resistance. Equidistant means “equal distance.” The parallel lines of support and resistance are at equal distance with each other. The price remains in Equidistant Channel till it breaks support or resistance level. The term “equidistant” means “of equal distance”. This refers to the parallel trend lines that are an equal distance apart from one another. Traders use this tool to identify both short and long term trends. This can certainly give some valuable clues to those market participants, who are employing trend following strategies. However, the use of this tool is not strictly limited to those methods. In fact, the price breaking out of the Equidistant channel can be an important sign of trend reversal.
What is the Equidistant Channel?
Equidistant Channel represents two parallel trendlines connecting extreme maximum and minimum close prices. Market price jumps, draws peaks and troughs forming the channel in the trend direction. Early identification of the channel can give valuable information including that about changes in the trend direction what allows to estimate possible profits and losses.
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.
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.
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.
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.
To draw the equidistant channel, we need to find out at least four points. Two swing highs and two swing lows are the best combinations. It works with three swing highs and one swing low or vice versa.
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 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 Conclusion
The Equidistant Channel represents two parallel trendlines connecting extreme maximum and minimum close prices. Market price jumps, draws peaks and troughs forming the channel in the trend direction.
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.
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