Range Trading Forex

Trading Forex Trends

When you drive a car, you always change your style of driving keeping in view whether you are in the heavy traffic city area or on a six lane highway. Trading is also like driving the car. There is no one style of trading. Your style of trading should change according to the market conditions.

What this means is that you need to adopt an appropriate trading style in accordance with the market conditions. Now there are three basic types of market conditions: Trending currency pairs have a definite direction. Range bound currency pairs bounce between the support and resistance levels. Consolidating currency pairs are bound in a narrow consolidating area.

Now, when a market is trending it is behaving in a totally different fashion as compared to as when it is ranging or consolidating. So the trend trading strategies maynot work for a ranging market. In the same way, range trading strategies will not work for a trending market. Fortunes are always made in a trending market. But most of the time the market is ranging. So you need to learn range trading too in order to make money. Ranging trading might not be as profitable as compared to trend trading. But this is the way it is. You can’t help it. Either only trade trends and wait for a trend or do both trend trading and range trading. Now, statistically speaking, trends in the currency market last for a long time that may last from months to even years.

Once you have clearly spotted a trend, it is easy to trade one. In case of a trending market, the currency pair has a clear direction. What this means is that there is very less tendency for the stop loss to get triggered as the currency pair is moving in an established direction.

In contrast to a trending market, in a range bound market, the currency pair price action is bouncing back and forth between the support and resistance. The price action always comes back to the starting point. What this means is that the trading technique for a range bound market is totally different than a trending market.

Now, identifying a trending market maybe an issue for some traders. You can eyeball the chart and draw a trendline. Drawing a trendline is a subjective matter. Ask three traders to draw a trendline and all three will come up with a different trendline. But the direction of the trendline will always be the same. So, drawing a trendline on the chart can be an easy way to determine whether the market is trending or not. Most Trading Softwares now draw the trendline!

You can also use the ADX ( Average Directional Index) Indicator. If the reading on the ADX chart is above 35, it means that the market is in a strong trend. However, ADX does not show the direction of the trend!

About the Author

Mr. Ahmad Hassam has done Masters from Harvard. Learn this powerful
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