Trading forex in ranging markets is a simple prospect. You simply buy as price approaches support and sell as price approaches resistance. If the forex market structure is a true ranging market, then you will have the opportunity to long and short this pattern multiple times over and over.
Ranging forex trading markets are actually quite straightforward. They features sideways price action as price drifts from left to right horizontally if you’re looking at it on your MetaTrader 4 charts. While drifting sideways, price will tend to bounce within the range structure off the highs and lows which form resistance and support.
It’s this predictable price action in ranging markets that allow savvy forex traders to profit from each move, no matter the direction.
The Best Places to Enter Trades Within a Range
The best places to find forex trading opportunity within a ranging market is at the range boundaries. That is at either the tops or bottoms of the market, at what is obviously resistance or support. This is where the opportunities for both daytraders and swing traders will occur.
The range boundaries are the best places to trade forex within a ranging market because this is where forex traders can most easily manage their risk. By using the strong support/resistance levels that have formed at the edges, traders can be sure when they’re right or wrong and either hold or get out of their position accordingly.
By combining these range boundary support/resistance levels, traders can use candlestick patterns to watch for reversal patterns. Any confluence just adds to conviction in your trade.
The Best Places to Get out of Trades if you’re Trading a Range
The range structure of tops and bottoms at resistance and support will generally keep unfolding until a breakout in either direction occurs. This is where a ranging market can easily turn into a trending market and forex traders have to be aware of the impending change.
As support and resistance isn’t an exact science and often act as zones rather than hard levels, if you’re trading ranges, you have to be aware of fake-outs. This sort of price action is what traps new traders, so proper risk management when setting your stops above and below the range is imperative.
Many forex traders try to use breakouts as their entry point, but in actual fact, the less risky option is to use them as entry points in the opposite direction. You want to buy at support and sell at resistance, and if you can get an even better price on a fakeout, then that’s even better!
Avoid entering the forex market mid-range and also avoid the temptation to trade range breakouts as mentioned above. Target compelling reversal signals at the range structure levels!
Source: Vantage FX Blog