Range Trading Market Strategies
Those that have extensive experience in the market know that there are only a few different directions that market prices can travel at any tgiven time. Many would suggest that prices can only travel higher or lower, and this makes sense because if you are looking at a price history on a tick-by-tick basis, this would appear to be the case.
But when we look at a price history using longer term candlestick charts, different sorts of trends can start to emerge. Specifically, this means that a trend can either be bullish, bearish, or sideways as the majority of the market is still looking to a clear direction on which to base their positions.
When this type of scenario occurs, and markets are caught in a sideways trajectory it is generally a good idea to start to implemented range trading strategies. These types of strategies will generally benefit when traders are able to clearly identify support and resistance levels that have been tested multiple times in the past. Once this is done, traders can then look to buy into the asset when it is hitting its range lows (near your defined level of support) and then to buy again once the asset is hitting its range highs (near your defined level of resistance.
Let’s take a look at a real-time historical example.
Chart Source: FiboGroup
In this case, the GBP/USD is falling to long term support against the commonly traded US Dollar. This is measured using the GBP/USD currency pair. In this example, prices are trading sideways and we are beginning to approach important support zones near the 1.54 marker. Generally speaking, traders will expect prices to start to rise once this type of activity occurs. In contrast, traders would be looking for prices to fall once prices rise back toward the important level of resistance that we have already defined.
This is important because i means that we can base clear trading positions based on this information. In this example, this would mean that our buy zone for long positions would come in near 1.54. In contrast, the specified sell zone would come in near 1.5850. This type of visualized scenario is great for those looking to implement new trading strategies during periods where prices are not caught in a clearly defined trend.