What is the range trading strategy?
Normally, every trader out there is looking for the best technique to help them achieve their objectives. Range trading is an increasingly popular approach to the market, more people are looking to it as a means to take advantage of what the forex market has to offer.
Range trading is a forex trading strategy that involves the identification of overbought and oversold currency (also known as areas of support and resistance). Range traders buy during oversold/support periods and sell during overbought resistance periods.
Range trading can generally be implemented at any time, but it is most effective when the forex market lacks direction with no discernible long-term trend in sight. Range trading is at its weakest during a trending market, especially if market directional bias isn’t accounted for.
Different types of range:
With a rectangular range the price moves sideways between an upper resistance and a lower support which are roughly horizontal. These kinds of ranges are common at all time scales, though they are not as commonplace as channels or continuation ranges (see below). It is easy to spot horizontal ranges on the chart either visually or with indicators.
Price Channels (diagonal ranges)
Price channels are another common chart pattern in forex. These are simply diagonal ranges. In this kind of range, the price ascends or descends within a sloping trend channel. The channel can be rectangular. Channels can extend over very long periods, sometimes years. These are of course trends but in reality, most of the short duration trading opportunities will happen within the ranges that develop within the trend. For this reason channels can be traded with a trend following strategy or a breakout strategy.
Continuations Ranges: Flags, Pennants, Wedges
Continuation ranges are chart patterns that occur within trends. These include pennants, flags, wedges and triangles. These kinds of ranges usually mark a correction against the predominant trend. They can be either bullish or bearish signals.