It has been said that the market can do one of three things: it can go up, it can go down or it can go sideways.
However, most traders are only concerned about two of the three scenarios: markets that trade up and markets that trade down. This interest has likely developed through the age-old advice handed down through generations to buy low and ll high. However, this strategy is not always as straightforward as many traders would like for it to be. Trends are often not as clear, consistent or as prolific as traders expect when they enter the market. So, what alternative to this discretionary mainstay do traders have? Range-bad trading.
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What is a range trade? It is exactly as the name suggests: a period of consolidation or congestion where price action does not produce a clear bias through a steady development of higher highs or lower lows.
Of cour, this is a broad definition and can encompass a period of volatile chop with no clear boundaries on either side of the market on one end of the spectrum all the way to a perfectly horizontal band of repeatable swings on the other. It goes without saying that the more definition a range produces, the easier it is to ba a trade around. And regardless of your preference, you can apply range trading strategies to all time frames, small or large.
Now, let‟s move on to the building a basic range-trading strategy.
First and foremost, we are looking for a repeatable pattern of congestion or a trading zone that has e
stablished resistance and support over a period of time. This type of condition provides for an incread likelihood that price action will remain within the trading zone for a period of time like you can e here.
Obviously, the longer it does, the easier it becomes to place buy and ll trades and manage tho trades with stops and limits. Many traders like range trading strategies becau the “where do I buy and where do I ll” question becomes less of a hurdle. Good range trading conditions provide fairly reliable support and resistance levels that help keep price action contained, making it easier for trad
ers to decide when to get into and out of trades.
Many traders consider two successful tests and retracements at support and/or resistance as confirmation that a range is in place. However, I like to e three points of confirmation before I consider a range has been t up. Let‟s look at a few ranges to get a feel for what this technical pattern can look like. As you can e, ranges can come in different shapes and sizes; but the general definition of the channel is the same throughout.
Perhaps the most uful element of the range trade is that it offers a clear area to enter the market and to place stops. Let‟s begin with analyzing where to enter the market. Optimally, we want to find an entry as clo to support or resistance as possible to take full advantage of the trading band while further being able to place a stop that does not involve too much risk. This does not mean, however, that we should hold out for an entry that is at the very edge of the market like we e here and here. Depending on the width of the range, anything in the top and bottom quartile can be considered a good region for entry. With this rule of thumb, you can e that there are quite a few times that price action came into the regions allowing us to enter a number of range trades if we wished.
For me personally, becau I like to e three points of confirmation before I enter into a range ba
d trade, I probably would not have entered any trades in this area here. I would however have been
watching price action cloly after this time and as prices begin to swing up towards the upper band of the range again, like they have here, I would certainly be at my computer ready to take action.
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For this video, l et‟s assume we placed a ll position around this level, near the high of this range or resistance level. Again, we certainly could have also sold here and here as both of the areas have price action in the upper quartile of this range or if we were looking to buy we certainly could have go
ne long at this position as well. But i t‟s up to the trader to decide w hich trades they wish to take and how much confirmation they need before entering.
Now, l et‟s talk a bit about where to t our stops and limits.We‟re going to pull up a new chart briefly to explain an import concept ud for placing stops. But we‟ll return to this example shortly, finishing out the management of this trade. When deciding where to place your stops, this should be first and foremost defined by the technical situation. Look back over the life of the range. Was there ever a spill over on the trendline that defines the boarder of the range since its development, like you e here and here? Has the market stalled at the extreme of its band for an extended period before retracing? If either of the cas comes up, we will want to place a wider stop to account for any …tails‟ or a possible surge in volatility that prents a fal breakout. So in this example, we might want to t our
stop somewhere in this area here, beyond the deepest spill over to give ourlves a bit more cushion in the trade.
减免税会计分录Another consideration for placing stops is the actual risk of loss or the dollar loss on the trade. Most good traders prepare for and expect the worst. After tting the stop through technical considerations, we need to also calculate the total risk we‟ll be taking with this position. If the loss would be too large to sustain, we can try to decrea our position size so that it is reasonable. If this is not possible, it is best to just move on to the next trade. We should never compromi a sound tra
de by thrusting it into a risk profile we‟re not comfortable with.
Now let‟s return to our previous example to look at the technical situation and decide where a good place to place to t up our stop might be. We can e that after entering our short position, prices began moving up towards an extreme within this range. Therefore, history would suggest that it is likely the market will rever at the same level. Also, this range doesn‟t have any big spillovers that we need to be concerned with all former price history touched the upper boundary and immediately reversing cour. Therefore, I would look to place my stop somewhere beyond the upper band, somewhere around this price level.
Now we need to look at the opposite side of the trade. Let‟s assume our trade is currently in the money. Where do we take our profits? This, like placing a stop, is a point of debate; and it truly depends on the trader themlves. At the same time there are important guidelines to follow regardless of your ultimate objective. The clor you t your target, the more likely (and quickly) it will be hit. Following the same line of reasoning, the further away the target is, the less likely it is that the market will meet the level. Consider, it takes time to traver any distance in a market and price action can only move so far over a certain period of time. The further the market has to move, the greater the opportunity for an exogenous factor to slow the progress towards the opposite range boundary and even rever cour.
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As a basic rule of thumb we recommend traders try and achieve a 1:2 risk/reward ratio or better in their trading. Of cour, veral other considerations need to be taken into account when deciding where to t your stops and limits, including the pair you‟re trading, the width of range, cur rent volatility, your trade size, the size of your account, among other things. As you can e, good money management, which is highly important to a good trading strategy does involve a number of different considerations. In fact, we‟ve put together a vid eo specifically on money management for this very reason and I recommend that you watch this video as well.
But for purpos of simplicity, let‟s just stick with the basic 1:2 risk/reward ratio and look to t our limit somewhere in this area here. This provides us with a pretty good potential outcome on our trade if all things play out as we‟ve planned.
Now let‟s recap what we‟ve discusd in this video. To locate good range trading opportunities, it‟s important to follow the basic guidelines:
1)First, locate a currency pair who price action is currently consolidating and moving sideways.
Avoid pairs who price action is steadily creating higher highs or lower lows.
2)Next, look to ll in the upper quartile of the range and or look to buy in the lower quartile of
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the range.
3)For your stops, look over the technical situation of the currency pair and e if there are any
头发容易出油spillovers or tails that have formed outside of the range. If there are, it might be best to widen your stop outside of the ext remes. If there are not, it‟s most likely ok to place your stop just outside of the defined range.
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maur4)For your limits, determine the condition of the market, the pair you‟re trading, the width of the清明节用英语怎么说
重点院校range, among other things and t your limit appropriately. Again As a rule of thumb, we
recommend a 1:2 risk/reward ratio or better.
And there you have it.
We‟ve just discusd how to recognize range bound market conditions and how to locate trading op
portunities within them. Specifically, range trading can assist traders with more confidently deciding where to enter and exit their trades and where to t their stops and limits. Additionally, w e‟ve demonstrated how developing a range trading strategy under the right market conditions can be a very viable approach that many traders might consider. We appreciate you taking the time to watch this video and we wish you the best of luck in your trading.
