Trading ranges are one of the biggest hurdles for new and experienced traders alike. They are a time in which prices move sideways, oftentimes erratically, and technical signals that would otherwise result in profits falter and fizzle out. The bad news is that the market is in some kind of a range more often than not. The good news is that trading ranges can provide ample opportunity for savvy traders.
For the purposes of this discussion I will focus on two kinds of ranges and label them shorter term and longer term. What this means for you and your trading comes down to the time frame in which you are trading. A shorter-term range is one in which prices may move from top to bottom or bottom to top within a few candles to 10 or so, not enough for any kind of a trend to form. A longer-term range is one in which it would take at least 10 candles, usually more, and plenty of time for trends to form within it.
The longer-term range is the easier of the two to trade because there is time between bounces for prices to develop a trend and for that trend to show in the indicators. On daily chart this type of range can last anywhere from a couple of weeks to several months depending on the asset and the conditions. The idea is to follow the trend as it moves up toward the top or down toward the bottom of the range.
When you spot a move within a longer-term range move down to a lower time frame chart to find signals. For example, the USD/JPY has been in a range on the daily for the past 3 months. It is now moving up within that range, so I move down to a 4-hour chart to look for entry and only taking bullish signals.
Once you move down to the lower time frame chart it is OK to take any signal that emerges in line with the expected movement. In this case we can expect the USD/JPY to continue moving higher, so we will look for bullish signals. There have already been a number of signals including candle, price action, MACD and stochastic.
Signals can be taken up to and until prices reach the resistance target at the top of the range. Once this level is reached traders can expect volatility and the possibility of reversal or break through. This combination makes it a good place to take profits and regroup for the next trade. If resistance is confirmed there is a high likelihood the bottom of the range will be revisited.
The shorter-term range is harder to trade for a number of reasons including volatility and the time between bounces, that is the time it takes prices to move from the top of the range to the bottom. In these cases, traders may look to do two things.
If the range is especially tight or expected to persist for days or weeks, then fading each touch to support or resistance is the thing to do. This means watching for times when prices reach or exceed the top and bottom of the range and then make a trade in the expectation of immediate or imminent reversal.Trade now
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future
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