The Equidistant Price Channel is formed when the price movement finds support and resistance between two parallel trend lines.
The term “equidistant” means “of equal distance”. This refers to the parallel trend lines that are an equal distance apart from one another.
The Equidistant Channel can be both ascending (bullish) with higher highs and higher lows or descending (bearish) with lower highs and lower lows.
The main idea of the Equidistant Channel is to display the increasing or decreasing deviation of the trend line.
Traders use it to identify both short- and long-term trends, which can give some valuable clues to those who use trend following strategies.
However, the use of this tool is not limited to those methods. The price breaking out of the Equidistant channel can be an important sign of trend reversal.
For example, as we can see from the chart below, the EURUSD pair was engaged in a downtrend channel for around 10 days of trading.
As a result, the price has decreased from EUR 1.1450 to EUR 1.0650. This trend was then followed by three green candles, as a result of which the price broke above the downward channel and kept rising until the pair reached EUR 1.1153.
The Equidistant Channel can be used as ascending, descending, or horizontal. The ascending channel is drawn when the price is trending up.
In this case, the entry should be taken when the price produces the signal around the support level of the channel or (riskier) from the resistance level against the trend.
The descending channel is used when the price is trending down. To get the best risk and reward ratio, an entry, in this case, should be taken when the signal is produced around the resistance level of the channel.
The horizontal channel is drawn when the price is not trending up or down but fluctuates within the specific highs and lows that can be captured by the channel.
Entry can be taken from the support level as well as the resistance level. Trading on a ranging market is complex, but if the price obeys a Horizontal Equidistant Channel, profit can be gained even when the price is within the range.
In Ananda you have a preset Equidistant Channel instrument in your toolbar, that allows drawing two precisely parallel lines on the chart, moving it, rotating, and configuring depending on your needs.
You can find a detailed description of how to use it in the Line Studies section of this documentation.
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