In the eBook "Forex Surfing" you learned about the concept called "Channel Surf Zones". There is a more advanced adaptation of this technique that I also developed, however I thought it might be too much to include in that eBook as I didn't want to confuse you - there was more than enough for you to learn in that eBook without adding more to overwhelm you. Well, needless to say I've since decided to share some more about that technique for you to benefit from.
You might want to reread the section explaining "Channel Surf Zones" in the eBook "Forex Surfing" to get a refresher before you continue reading this.
The basic version of "Channel Surf Zones", as you already know, is strictly horizontal. Obviously this technique is suitable for within sideways consolidations but not for slanted consolidations, nor even within triangles. As I've introduced the concepts of trading within slanted consolidations and triangles I figure that now is the time to introduce you to the more advanced Modified Slanted Channel Surf Zones, which is suitable to be used on slanted consolidations and triangles.
The main challenge of using the "Channel Surf Zones" concept on consolidation patters (and triangles) that aren't nearly perfectly horizontal is how to calculate where you slanted line should be, and to set it at the appropriate slanting angle. The solution is rather simple to implement once you understand it.
I will show you how to do this once on a slanted consolidation. Doing this for a triangle is pretty much the same thing.
The above chart is explained in the steps below.
1. You start off by drawing your confinement trendlines (along the tops and the bottoms).
2. What you do is you turn on the "cross-hairs" on your chart. You can see the cross-hairs on my pointer in the chart shot above.
3. You then select a candle that is sandwiched between your confining trendlines. This candle is now your "reference candle" so that you can make calculation from this point in time. On the chart shot above I've used the candle where my cross-hairs are over as my "reference candle". It is important that your reference candle be as close to the left side, near the beginning of the consolidation, as possible.
4. Now grab a piece of paper and a pen to write down some numbers used for your calculations.
5. With your cross-hairs over your reference candle, align the cross to intersect with the top trendline. Write down the point value of where your cross-hairs is now; this is your "top number". Next with your cross-hairs still on your reference candle align the cross to intersect with the bottom trendlines. Write down the point value and this is now your "bottom number"
6. Subtract the "bottom number" from the "top number". This gives you the range of your consolidation at the point of time where your reference candle is. In the above example, the top number is 1.2384 and the bottom number is 1.2361, and so my range is 23 pips around my reference candle.
7. Multiply the number of your "range" by 0.3 - this will tell you what 30% of the range is. In my example 23 pips X 0.3 = 6.9, but since you need a whole number you simply round up, thus 6.9 becomes 7. We'll call this number the "reduction number".
8. You add the "reduction number" to the "bottom number", and you subtract the "reduction number" from the "top number". This gives you the "inner top" and "inner bottom" numbers. In the example above these "inner" numbers are now 1.2368 (inner bottom), and 1.2377 (inner top).
9. Then you place your pointer over the top trendline and "duplicate" the line. This will give you a perfectly parallel copy of the top trendline. Take the copied line and move it by grabbing it in the middle of the trendline. If you accidentally grab the line close to an end point you'll then be changing the angle of the line. If you accidentally do this then delete the line and copy the line again. It is important to keep them parallel. While moving the line, align your cross-hairs over your reference candle, then move up/down until your pointer is at your "inner top number". Release the line at that point. Repeat this step with your bottom trendline to have a copy set at the "inner bottom number". Note that the starting points of your trendlines don't have to be vertically aligned because the lines are parallel, so it doesn't matter if it is somewhat misaligned.
10. For esthetics (optional) you may change the colors of your external lines to be red, and the internal lines to be blue. At this point your chart should now resemble the chart example shown above.
Note that the use for this modified version of the "Channel Surf Zones" has a different use than the standard version. Because your outside trendlines won't be parallel to each other (most of the time for consolidations - but always for triangles), as you move along to the right of your "reference candle" your percentages will progressively change away from the standard 30-40-30 percentage zones. Because of this you don't use the "blue line" (as described in "Forex Surfing" as your entry/exit point. You simply use the area between the blue line and the red line as the zone where you watch for reversals to potentially enter/exit a trade within.
You'll find that most often (in a sloping consolidation) that the lines converge (move closer together), and obviously in a triangle the lines always converge. The inner lines will always converge before the outer lines. It is interesting to observe that particularly for triangles, but also applicable to slanting consolidations, you'll often notice that near where the inner lines intersect (usually soon after) is often quite close to where the breakout occurs - you can use this to predict roughly the time the breakout is likely to occur. You'll notice that there is a diamond shaped area, a parallelogram, between where the inner lines intersect and the outer lines intersect. Frequently this is the zone from which you'll most often see a breakout occur, and so for obvious reasons I think of this as the "diamond zone", with the obvious connotation that from the "diamond zone" I will catch my diamond pips. Tip: If you have scalped an entry going through the range when it is inside the "diamond zone" then secure a stop for at least some profit and let it run (unless you see an obvious reversal). You'll often be right and thus you'll end up catching the breakout early, resulting in more potential profits.
(Cool story: Once while teaching someone a little about Forex I noticed a triangle. I didn't explain to him the "Channel Surf Zones ", nor did I draw the lines on the chart; I simply imagined the lines. I mentally extrapolated the inner lines and envisioned where they should intersect, and what time that would be. I told him my prediction of what time I thought the breakout would occur, and within a minute of my time it happened. I was impressed with myself (as I'm not always right, or so accurate - ok, so I got lucky), but he was shocked! For a while he acted bewildered like he was in the presence of a god, or some kind of amazing psychic. I didn't explain to him what I did, as it was too advanced for him at the time, so I just let him keep his illusion of me being a superstar Forex guru, but now you know my "secret".) In the chart above notice that where the blue lines intersect the market stagnated and then soon after broke out. Now keep in mind that this doesn't happen every time, but you'll observe this frequently enough to use that convergence as an early warning of a potential breakout or some kind of change to the progression of the pattern.
If you are using this technique just for the purpose of looking for the inner convergence then you don't always have to do all the math and the steps above; you may just copy the trendlines and move them to the approximate position by just "eyeballing" it, which is "good enough" (due to my inherent laziness this is what I most often do anyways). Here is a triangle that I've "eyeballed" on a EUR/USD daily chart.
Just one more tidbit of wisdom to share with you before I wrap up this section. Though it happens less frequently, I've seen blue lines (after the intersection and the blue lines are now moving apart) act as a resistance/support trendline for the resulting breakout (more or less). This is just an interesting thing to watch for when you use this technique. It could possibly help you to notice a potential trendline earlier than you would normally spot it waiting for two or three points to line up (what you would normally consider to be an established trend). Notice that on the above "eyeballed" chart the top-inner line acts as a very nice resistance trendline, and furthermore the top-outer line acts as a secondary trend line, which in this case crossed at exactly the point where it is obvious that the large trend has reversed (also indicated on this chart by the crossing S.E.X. lines).
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