How To Range Trade
The forex market is unique to most other financial markets in that it does not need to be going up for there to be opportunities for profit. Range trading is a strategy that takes advantage of lower volatility sideways movements of the currency market.
Take a look at this chart of the EUR/CHF. There are support and resistance lines marked off and we can see the EUR/CHF bouncing off of these support and resistance lines and returning towards the midway point. Range traders thrive in these situations and buy at bottoms and sell at the tops taking advantage of several trading opportunities rather than trying to call a break out.
The forex market is unique to most other financial markets in that it does not need to be going up for there to be opportunities for profit. Range trading is a strategy that takes advantage of lower volatility sideways movements of the currency market.
Take a look at this chart of the EUR/CHF. There are support and resistance lines marked off and we can see the EUR/CHF bouncing off of these support and resistance lines and returning towards the midway point. Range traders thrive in these situations and buy at bottoms and sell at the tops taking advantage of several trading opportunities rather than trying to call a break out.
Setting up a Range Trade
1.Choosing the Right Currency PairTypically, look for pairs with low interest rate differentials. Also look for currency pairs who’s economies are intertwined. A good example of this is the EUR/CHF. The majority of Swiss exports go to the European Union and Switzerland is surrounded geographically by the European Union.
2.Determining Support and ResistanceThese barrier levels can be determined by looking at previous highs and lows, pivot points, Bollinger Bands or fibonacci levels
3.Setting stops and limitsIn long positions, set limits near the top of resistance and stops several pips below the swing low. You don’t want to be taken out just as the market turns in your favor, so make sure to allow room. In short positions, limits should be set near the bottom and stops above the swing high.
4.Don’t be Greedy Have goals for each trade. Follow the range trading strategy and if there is a break out don’t chase it. Although you might be able to make money on the trend, you may also lose your head.
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