Other than knowing support and resistance another way of trading is identifying trading ranges. A range is an area on a chart where price will meander up and down and can last for months and months. These ranges give a trader a powerful opportunity if they can recognize them and that is being able to sell into and buy into in certain areas.
Depending on the pair the range can have up and down moves of up to 300 to 400 pips, as an example with the EURUSD dollar chart below.
( current range on EURUSD 30th of October 2012 getting close to a buy zone)
The Steps to Identify
- Go to the daily chart, here you will be able to see them more clearly, sometimes a pair will be out of range or even moving into a new range.
- To identify look for places where price bounces more than 3 to 4 times up and down between two prices. A perfect example can be seen on the EURUSD currently with prices bouncing between 1.2830 area and 1.3150 area. As it has done it multiple times now, this now is considered a range, only by breaking out would that change.
- Highlight the area with a rectangle in mt4, that way you will be able to see it clearly and know when price is moving into that range.
- Buy at the bottom area and sell near the top, of course looking for signals in these areas to reduce risk.
Currency pairs half the time are in ranges, many traders or people do not even recognize them, by doing so will give that extra edge needed to see what the majority cannot. If you have any questions feel free to comment below.