What is the Range strategy in forex and how does it work?

forex trading strategy

All traders seek out the most effective strategy in Forex for achieving their trading objectives. Range trading is becoming more popular as a way to profit from the currency market.

Range trading is a popular strategy among active traders. Those who want to join the crowd must learn not just the many sorts of ranges they’ll encounter, but also the technique for maximizing the effectiveness of these ranges.

What is Range trading?

Range trading is a forex trading strategy that involves determining whether a currency is overbought or oversold (also known as areas of support and resistance). Range traders purchase when the market is oversold/supporting and sell when the market is overbought.

Range trading may be used at any time, but it is most beneficial when the forex market is devoid of direction and there is no obvious long-term pattern to be found. During a trending market, range trading is at its weakest, especially if market directional bias isn’t taken into consideration. 2017 was a wonderful year for range traders due to the majority of currency markets drifting sideways.

Types of range

The common attempt by forex traders to “buy low and sell high” is referred to as range trading in foreign exchange. While this may appear to be a simple task on the surface, it can be difficult to achieve in practice. There are four types of Range trading:-

  1. Rectangular Range

You’ll witness sideways and horizontal price fluctuations between lower support and upper resistance when you face a rectangle range. During most market situations, this is prevalent, although not as often as a continuation or channel range.

Notice how the currency pair’s price movement maintains inside the upper and lower lines of resistance in the chart below, forming an evident rectangle range with clear parameters for finding potential purchase opportunities.

Horizontal ranges on a chart should be simple to see even without indicators. Clear support and resistance zones, a flattening of the moving average lines, and highs and lows within a horizontal band are all common features of charts.

Rectangular ranges signal a moment of consolidation and have a shorter time frame than other range types, allowing for speedier trade opportunities.

  1. Diagonal range

Many range traders are interested in diagonal ranges in the form of price channels, which are frequent forex chart patterns. A sloping trend channel allows the price to drop or increase in a diagonal range. This channel may be rectangular, widening, or narrowing in shape.

Breakouts in diagonal ranges tend to occur on the other side of the current action, giving traders an advantage in forecasting breakouts and profiting.

  1. Continuation ranges

A continuation range is a chart pattern that develops when a trend is in progress. Triangles, wedges, flags, and pennants are all examples of these ranges, which frequently arise as a reversal of a prevailing trend.

Depending on your trading time horizon, continuation ranges can be traded as ranges or breakouts. Continuation ranges, whether bearish or bullish, can arise at any time.

Continuation ranges can appear regularly in the middle of continuing trends or patterns, and they frequently culminate in a swift breakout, satisfying traders looking to start a position and profit immediately.

  1. Irregular ranges

At first look, most ranges don’t appear to have any discernible pattern. When a severely irregular range develops, it usually revolves around a central pivot line, which is surrounded by resistance and support lines.

It can be tough to determine support and resistance locations in an irregular range, but it will give possibilities for those who like to trade near the center pivot axis rather than at the extremes.

For traders who can spot the lines of resistance that make up these ranges, irregular ranges can be a terrific trading opportunity.

Range strategy in Forex 

Range trading is a popular strategy among active traders. Those who want to join the crowd must learn not just the many sorts of ranges they’ll encounter, but also the technique for maximizing the effectiveness of these ranges.

What is Range?

To get started, you’ll need to figure out what the trading range is. After a currency has recovered from a support region at least twice, this may be found. The currency should have also retreated from a resistance area—at least twice more. These highs and lows don’t need to be identical in every regard, but they should be close in proximity.

Some traders like to wait until there have been more than two highs and lows, but this is a question of personal opinion. After these highs and lows have happened and been identified, a straight line may be drawn on the chart to connect them, forming the currency trading range.

You’ll need to set up your entrance after you’ve got a trading range in your sights. This may be accomplished by placing purchase orders at support levels and selling orders near resistance levels. Some traders employ indicators to assist them place trades. When employing indicators correctly, every trader should be able to exert more control over their entrance, generally by gaining a better understanding of when to enter or quit a position.

Manage risk with Range trading 

You must remember the last stage of every successful range trading effort once you’ve selected your range and set up your entrance. Risk management is important no matter how you trade, but it’s even more important when you range trade. Traders will understandably want to exit a range-based position if a resistance or support level breaks.

When it comes to ensuring that range trading is risk-averse, having a stop loss in place can assist. While selling a range’s resistance zone, it’s common practice to place a stop loss above a prior high, and you may easily flip the procedure when purchasing support.

Range trading, unlike other trading methods, does not embrace the wild west side of forex; rather, it is on the tame side. Although some argue that range trading is too basic for today’s market conditions, its significance and popularity have never waned. When the forex market is unable to find a clear direction, range trading may be quite effective. 

You can earn big money trading ranges if you identify the range, time your entrance, limit your risk exposure, and, most importantly, grasp the principles of range trading. If you want to learn more about the Range strategy in forex trading, you can enroll in the capital Varsity forex trading course, which will teach you all you need to know about the currency market.

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