TRADING THE RANGE PROFITABLY

Trading the range is an ideal strategy for a new trader as the tops and bottoms are easy to identify and some good profits can be made with little risk.

Introduction:

Many fairly mature forex traders believe that trading the range is not a good trading strategy and believe that without volatility there is no serious money to be made in trading. Whilst there is a grain of truth in that belief especially for the big players in the market, for retail traders range trading can be quite profitable and less risky than trend or breakout trading. Retail traders can make good profits with little risk when trading the range as long as they know the limitations of the range.

Trading the Range Profitably:

Exactly what is range trading in forex? It is a strategy where a trader identifies the tops and bottoms of a range in which a currency pair is trading. The range means that the tops form a resistance level and the bottoms form a support level. These levels are not broached for a period of time which could be anything from hours to days or even weeks. The trader makes money by buying at the bottom of a range and selling at the top of a range.

In the NZD/USD daily price chart below the currency pair has been trading in a range of 155 pips for 40 days. The line drawn on the upper range at the currency price of 0.8262 represents the resistance level and the line drawn on the lower range at the currency price of 0.8108 represents the support level.

Once two sets of lines are drawn which set the boundaries of the range it is easy for the trader to identify the tops and bottoms of the range. The trader can then trade by buying at the lower range level or support level and selling at the upper range level or resistance level.

This identifiable range also enables the trader to set stop losses that are not far from the entry price and thereby not take a big risk. It also enables the trader to accurately identify an exit point because knowing the boundaries of the range the exit point for a buy can be set just below the resistance level and the exit point for a sell can be set just above the support level.

This means that a new trader can make some fairly good forex profits on a repeat basis over a number of days and also use stop losses so as not to make big losses. Psychologically this is good for a new trader to learn the trading ropes without taking huge risks. 

So to profit from trading the range you need to also set up your indicators like the MACD and RSI so that you can double check that there is not going to be an imminent breakout of the range. Once you have the indicators in place all you need to do is wait for the price to near the resistance or support levels and check your indicators to see if the currency pair is overbought at the resistance level, therefore you have a sell signal, or that the currency pair is oversold at the support level and therefore can be bought.