According to microeconomic principles, with a decrease in the overall price of a certain commodity, its demand rises. Sellers use this data to identify demand and supply of these commodities according to user demands. Likewise, traders often choose to go with a range of candlesticks headed one way. Like the sellers, they prefer to take into consideration the rising/falling demand in the currency they are dealing with. Range Forex trading allows traders to find suitable support/resistance levels thereby being able to manage risks.
Some traders choose to shift to range trading from just trading trend lines. One reason for this is the inability to draw perfect trends depending on market conditions. Plus it might be impossible to get 3 unidirectional crests/troughs which will aid in making the trend.
How is Range Forex trading effective?
Apart from trading trends and trading occasional break outs and even false breakouts, one may choose to trade with ranges. Ranges do not display a general bias on market flow do they specific exact breakouts (if they occur within the range). Rather they are bands within which prices get stuck.
Thus prices fall between either of the parallels forming the range (support or resistance). So traders may choose to trade with the range or may look for potential breakouts. Thus,
• You can either choose to trade the up range by selling your resistance or may choose to buy resistance levels expecting significant market movements.
• You may choose to trade at the breaking points that move away from ranges. Breaks may be succeeded by unprecedented market movements which may not be too beneficial for traders to trade with.
Testing efficiency of trading the range Forex:
Currency trading is associated with erratic market movements due to which currency prices also move in unpredictable patterns. For the same reason, ranges trade for almost 80% of the time while the remaining sticks to trend lines. Thus when prices do not fluctuate within a definite range, it is advisable to flow it until potentially beneficial trading points occur.
Say that you are trading with a particular pair, EUR/USD and utilizing a trading strategy that involves following the range. Compare with another currency pair and out your price action to test. If pairs move fairly smoothly, it is a welcome sign for currency dealers to blend effective strategies with it. This also helps traders to manage risks, especially while taking the right path for more profits.
A basic simple strategy for Range Forex trading:
Apart from finding the range, it is essential to find effective support and resistance levels. These are precisely the two ends of range. While resistance part of range looks for potential selling flow, support levels do the opposite.
For better trading, the range Forex, choose to time your entry into the market at an accurate timing. One way to do this is using an oscillator. Consider using stochastic or Fibo oscillators for better control on extreme positions.
To conclude, Range Forex trading provides traders with enough room to take profit orders and manage risks. Risk management is one of the principal parameters than an indicator or strategy should follow. Because fixing potential risk handling tools at the right place, experts consider ranging to be effective.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.