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1. Understand channels and their variations. Channels are constructed by drawing straight lines at an angle connecting the highs and lows on a particular chart, forming a band between which prices often trade. Other forms of channels are mathematically calculated from price and volatility data, and form an envelope around the price of a particular pair, with the high end denoting an overbought extreme, and the low end denoting an oversold extreme. Such channels are called linear regression lines, Bollinger Bands, and Keltner Channels.
2. Settle on a trading timeframe. Most Forex participants trade on an intraday basis, using 5-minute, 15-minute, or 60-miunte charts. Each chart obviously looks different. If you trade channels on a 5-minute chart, the range and depth of price movement is considerably more constricted than if you trade on a 60-minute chart or longer. The timeframe you elect to trade will both affect the primary technical picture you see, as well as how you will need to adjust your profit expectations and stop loss safeguards.
3. Trade bounces off of channel highs or lows. Many traders combine this strategy with indicators called 'oscillators' as part of a short-tem countertrend strategy. A particular advantage of countertrend strategies is that most of the time Forex prices tend to churn in a relatively narrow range, bouncing off lower and upper channels. This creates many short-term, high probability trades. The disadvantage is that when prices do eventually breakout to the upside or downside, they move very strongly, and getting caught on the opposite side can lead to large losses.
4. Trade channel breakouts. As soon as a price bar closes above the upper channel line, buy immediately at the open of the next price bar. This strategy will be unsuccessful far more often than a countertrend strategy, but when it's right and you catch a big move, the profits from one successful trade can more than pay for three or four losing trades. Channel breakouts tend to be most successful if you buy into them after a prolonged stretch of particularly narrow range trading. When buying a channel breakout, you might also wait for a retest of the upper channel before buying to get a better price.
5. Observe other technical factors that compliment channel analysis. The most important are trend, support and resistance, and range. Typically, when Forex prices compress and coil into a particularly narrow range channel, there will soon be a large breakout move, either up or down. Conversely, after a big range move, prices tend to bounce around in a new narrow range before either continuing or reversing the previous trend. Be aware of the broader conditions affecting the Forex pair you are trading, and use channels to augment your overall analysis.