Range trader forex

Range trading is one of the most basic trading methods in forex. It complements other strategies such as trend following and breakout trading but many use it successfully on its own.

It is not difficult to spot a range in a price chart. In most financial charts, there are obvious areas where the price seems to follow what looks like a predictable path. Traders like ranges because they do one thing: Ranges form where the price is constrained between a support area and a resistance area.

The basic way to trade ranges is to enter or exit near to the range boundaries. That means selling when the price is at the top of the range and buying when it is at the bottom. The top of the range provides a resistance area to price rises and the bottom a support area for price falls.

Figure 1 below shows an example of a rectangular range or box channel in which the price moves within a pair of parallel lines. As with all trading systems, success lies in attention to detail and correct execution of the technique. With a rectangular range the price moves sideways between an upper resistance and a lower support which are roughly horizontal. These kinds of ranges are common at all time scales, though they are not as commonplace as channels or continuation ranges see below.

It is easy to spot horizontal ranges on the chart either visually or with indicators. The horizontal range typically shows:. The bottom indicator in Figure 2 is the MACD indicator. The MACD histogram line shown in black crossing downwards through the signal line orange indicates a sell signal.

An upward crossing through the signal line indicates a buy. The height of the MACD line indicates the level to which the price is overbought or oversold. Indicators like MACD are useful if you are using automation. The ATR average true range , RSI and standard moving averages are also helpful. There are also some specialized tools available for automated trading.

Price channels are another common chart pattern in forex. These are simply diagonal ranges. In this kind of range, the price ascends or descends within a sloping trend channel.

The channel can be a rectangular. But it can also be narrowing or broadening. Channels can extend over very long periods, sometimes years. These are of course trends but in reality, most of the short duration trading opportunities will happen within the ranges that develop within the trend.

For this reason channels can be traded with a trend following strategy or a breakout strategy. When short duration channels form against the main trend, these are often continuation patterns.

These include wedges , flags , and pennants see below. With channel ranges especially the shorter duration ones, breakouts tend to happen in the opposite direction. In an upward sloping range, the most likely break is to the downside. In a downward sloping range, the most likely break is on the upside. This is not a cast iron guarantee by any means, but it is a useful rule of thumb in technical analysis.

Figure 6 below illustrates this. A downside break happens, in a bearish rising wedge.

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This gives back nearly all of the gains that the upward trend made. Figure 4 shows a longer bearish channel. Here the range sees a strong upside breakout. False breaks can happen from a variety of triggers inlcuding news releases.

These are sometimes a result of program trades when automated systems enter on the first response to a data release. The price then reverts to its original track. Figure 5 shows an example of a breakout of a channel in the direction of the range itself. This happened during an announcement by the US Federal Reserve. The price does fall back within the range shortly after making a break of some pips upwards.

For the reasons above, depending on the range slope and the currency pair, some traders prefer to trade one direction or another, rather than trading both ways. Continuation ranges are chart patterns that occur within trends.

These include pennants , flags , wedges and triangles. These kinds of ranges usually mark a correction against the predominant trend. They can be either bullish or bearish signals. These patterns can occur at virtually any timescale. They can be traded as ranges in their own right, or as breakouts — depending on your trading time horizon. These patterns can produce strong bullish or bearish breakouts when the prevailing trend resumes, so many prefer to trade them as breakouts rather than ranges.

With most ranges, the pattern is not obvious on first sight. In such formations, the price movements take place around an central pivot line with support and resistance areas forming around it. Tools such as trend line analyzers and moving averages are useful in marking out these ranges and identifying where the support and resistance areas are. Some traders prefer to trade these kinds of ranges towards the central pivot axis rather than at the extremes.

In this way, they aim to trade out extremes of price on the assumption that it will revert to a mean the central pivot axis. For more on this technique see this article on pivot trading. With this strategy, you use a smaller profit target and seek to capture the price movements as the price pushes towards the central axis of the range. As mentioned above once the price hits the range wall, the chance of breakout or partial which hits a stop loss is always there.

Therefore, by trading at the edges of the range the trader is relying on the price turning successfully in their favor. By trading the central area, you can reduce the risks of turns at the edges of the range. In most situations, the price movements in a range deviate around a center line. Setting your entry and profit target away from the extremities improves the chance of reaching your profit target.

It also increases the number of tradable opportunities that you will have. The downside though is that it will reduce your potential profits on each trade. If something looks too good to be true it probably is; if the range looks like a sure thing it could be due a breakout at any moment. Range breakouts are rarely clean and decisive.

This is a reality that will complicate any breakout or range trading strategy.

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Failed breakouts mean the price will often break then descend back into the range. There are indicators available for handling and detecting range breakouts.

Range breakouts can be strong and will take profits along with them. If you are caught the wrong side of the move, it is best to cut the loss and wait for another entry opportunity. Likewise, it is best not to try to trade back towards the range after a breakout. With well-established ranges, several retests of the boundary are common before a full breakout.

Use the retest as an exit opportunity. For this reason, we avoid the trade when a break looks possible even if the price moves firmly back inside the range.

This margin of error means giving up some profit, but it leads to fewer loss trades. This part seems unclear to me. Breakouts often take a few attempts. When you say avoid obvious setups can you expand on that? Does that mean then where the range looks so clean that it cannot really continue like that and must be a break? This means where the trade looks like a given in reality probably the opposite is true.

With ranges they do look obvious after the event once the move has already take place.

The 3 Step Range Trading Strategy

For example you can get a breakout on a lower range, but in fact it is just a continuation of a range the next level or two up. When entering the trade think about the other side. Leave this field empty.

Steve has a unique insight into a range of financial markets from foreign exchange, commodities to options and futures. Start Here Strategies Technical Learning Downloads.

Trading Learning Strategies Apr 17, 4. Using indicators to find range reversals. Upward diagonal range with breakout. Downward diagonal range with breakout. Channel breakout in direction of range. Rectangles, flags and wedges.

Want to stay up to date? Just add your email address below and get updates to your inbox. TAGS Breakouts Pivots Range Trading Resistance Support Trends. The Descending Broadening Wedge The descending broadening wedge is easily spotted on a chart. It looks like a megaphone with a downwards Ascending Broadening Wedge Patterns The ascending broadening wedge is a chart pattern that can be traded in several ways; either as a bullish Interpreting Price Channels and Rectangles Both rectangles and price channels appear in virtually all forex charts.

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