Range trading is one of the easiest way of trading mostly for beginners. This is because it is one of the easiest strategy to utilize. This strategy is obviously not only for beginners, a large number of successful professional traders also make use of it. However, being a simple strategy, there are a few things you need to take a good look at when you are range trading.
Range trading simply means the practice of buying when price is at the lower support levels, and selling when the price moves to the upper resistance levels. It is based on the assumption in that in 4/5 of the time in a market, price channels but does not trend in a particular manner or direction.
Range bound market has the characteristic of pressure to buy (support) and the pressure to sell (resistance). Resistance and support create the two channels where by the market is either concentrated by the pressure to buy or the pressure to sell at a particular point in time. As the two major channels are defined, range traders will buy at support and sell at resistance.
Range trading is probably the easiest strategy for the beginner to use when they start in Forex; fortunately it is also a very profitable strategy. It is all about knowing the price of currency often stays within a certain range. Once you can figure out what that range is, it is easy to execute decisions about when.
To be a successful range trader, you will have to figure out the support and resistance levels for the currency you are interested in. The support level simply means the price that the currency won’t go below, while the resistance level is the price that it doesn’t go above. The moment you have known all these, all you have to do is buy when the price hits the support level, and sell when the price hits the resistance level.
It is good to determine the range strength which depends on time. If the trading range has been in force for a long period of time, it is assumed and expected to continue. The more times the security price touches the support or resistance, the higher the chances of these support or resistance trends continuing. In a range trading, the support and resistance should form a horizontal line. The chances of a range trading becoming more profitable increase as the support or resistance level lines become more flat. If either the support or the resistance or both are sloping; this may not a good range or may not be a range at all. A good range should have a flat support as well as flat resistance.
The stochastic oscillator is a good indicator in choosing and identifying the best range. A stochastic value of less than 20 indicates means that the security may be ranging. A stochastic value of more than 20 means that the security may not really be ranging but trending and a stochastic of 30 will confirm a trend. When the stochastic crosses the moving average from oversold level, it gives a signal to buy. When it does the contrary, it gives a signal to sell. This is how range trading is done and how range traders make profit; buying at support and selling at resistance.
A range trader should only trade in a range if it is wide. Supposing the stock market is ranging from $44 and $48 which is a range of $4, this may not be a good range for trade since it may not be very profitable and may not be able to cover the trading costs. Supposing however that the range was between $44 and $60 which is arrange of $14, this is a good range for trading since it will be profitable after deducting trading costs which are usually in the form of commissions.
In addition, Finding support and resistance levels require basic understanding of technical analysis and an ability to read charts Fortunately these are likely the simplest things to identify on the charts, so most beginners get it pretty quickly. Finding the resistance and the support level is based on the trend lines, when you draw them on a price chart; it will be clear enough to know where the resistance and support levels are. Once you know, trading is very easy, but you still have to be careful.
If you are going to use a strategy for trading series, it is important to keep in mind that the price can exceed the levels you have set for resistance and support. What we determine are the levels at which the price is difficult to find, if there is sufficient momentum, it will go through these levels. This means that you have to pay attention to other things besides the trading range.
Specifically you will need to focus on things like changing interest fees; this can greatly affect the price and send it directly through the help and resistance levels. Building a gainful forex trading strategy can come down to two key variables – Knowledge and testing. To profit by reviews and gain advice on forex trading systems and forex news.