Range trading is one of the most basic trading methods in the forex market. It can complement other strategies, such as trend following or breakout trading, and it can be used independently to help us make money.
It is not difficult to identify the ranges in the chart. There are always some obvious price areas that allow us to see the likely path of price change.
Although the interval has different forms of variation, it always has its own characteristics.
Know the basics of range trading Ranges are typically formed when prices are limited between support and resistance levels.
So one of the easiest ways to trade a range is to get in and out of it at the edge of the range, sell if the price is at the top and buy at the bottom.
Below is a graph of a matrix or square channel, with prices moving between nearly parallel prices: Bands come in different forms, such as these five 1’s.
Rectangular intervals Rectangular intervals take the form of intervals where the support and resistance levels are almost parallel.
Rectangular intervals occur more often than channels or persistent intervals.
Whether you look for it by eye or use indicators to identify it, rectangular areas are easy to spot. They have the following characteristics: clear upper and lower support and resistance levels;
A flat moving average;
Price highs/lows often occur at similar levels.
(Uses indicators to identify interval reversals.) The indicator at the bottom of the graph above is MACD.
The indicator column (black) down through the orange signal line means sell signal, and up through the signal line means buy.
The height of the MACD line suggests an oversold or overbought level.
2. Price channel (inclined interval) When the price channel or inclined interval is used, the price forms an upward or downward channel with a certain slope.
Channels can last a long time, even years.
Such channels are generally trend markets, but they often create short-term range-trading opportunities.
As a result, channels often trade with trend-following or breakout strategies.
In the short – term formation of the channel interval, the price is likely to reverse breakout.
At the intervals of the upward slope, most breaks are down, and vice versa.
This is not absolute, but can be an important rule in technical analysis.
Below is a bearish channel with a strong bullish breakout:
3. False channel breakout There may be many triggers for false breakout, such as important news statements, which may be triggered by automatic system trading, but the market has usually absorbed the news before the release of the news, and as the market consensus is re-established, the impact of the news fades and the price will return to the original track.
The chart above shows a channel break along the direction of the range, which occurred during the Fed statement.
The price rose above 300 points and then returned to the range.
4. Persistent intervals: flag, triangle, wedge. Persistent intervals are chart forms that occur within a trend, such as triangle, flag, wedge, etc.
These intervals are usually corrections in the prevailing trend, and they can be either bullish or bearish signals.
This pattern can occur at any time in the chart.
We can trade in a range or we can trade in a breakout.
5. Irregular Intervals There are intervals where the pattern is not obvious at first glance. In this case, the price usually moves around an axis line, around which support and resistance levels form.
Trendline analysis tools, moving averages, and other tools are useful for marking these intervals and identifying support and resistance levels.
Trading strategies all carry some complexity.
In a false breakout, the price breaks first and then returns to the range.
When trading a range, try not to chase prices after a break, which can be strong.
If you go in the wrong direction, cut your losses and wait for your chance to enter.
Similarly, it is best not to trade after a price break and return to a range.
For defined intervals, it is common to retest the boundary several times before it is fully breached.
Use the retest as an exit.
For this reason, we want to avoid trading when a breakout seems likely even after the price has reentered the range.
