April 24, 2020 | AtoZ Markets - Trading has been quite challenging recently as the COVID-19 impacted the world economy. Most of the financial markets are currently facing declines and corrections. In this corrective period, it is crucial for a trader to understand when to trade and when not to trade. In this article, we will know about a simple price action strategy that will help traders to lock in some good profits in this challenging period.
Price action is a very useful method to understand the forex market and predict further momentum of the markets in the future. Many professional traders around the world widely use the price action method. The main beauty of this trading strategy is that it ignores the number of indicators from the chart. Indicators are generally laggy, which gives a signal when the movement already happens. That is the reason that traders around the world use price actions to predict the market with the highest accuracy. However, there are no exact rules of price action trading that a trader can follow. Furthermore, there are many price action trading strategies available, and the range trading strategy is just one of them.
What Is the Range?
This will be a quick overview of range trading. By taking the time to understand range trading, you will able to develop a more efficient trading strategy. Range trading can be useful in every type of market, almost in every situation. Moreover, range trading is a strategy or a technique used to trade a range-bound market.
Range trading appears when a financial market (stocks, bonds, commodities, forex currencies or cryptocurrencies) move between two upwards and downwards boundaries for some time. These boundaries are known as support and resistance levels.
Range trading works best when the trend is absent. When the market is in a very volatile situation, that's when these consolidation periods settle in. Moreover, the range trading strategies crave fade the extremes of the range. Furthermore, we are looking to buy at the bottom of the range and sell at the top of the range.
On the other hand, many professional traders can look for a trading range breakouts. This type of trading strategy can give you quick profits as we are trading on the back of strong momentum. To trade on this ranging market, you need to time your entry. Moreover, traders can time range based entries by looking for clues that the support or resistance level is going to hold. Besides, in this range trading overbought and oversold indicators work the best to time the range based entry.
How to Trade in this Volatile Range Market
When the market is volatile, it's stuck between two-levels most of the time, which call support and resistance level. If you see that the price rejecting from the resistance and bouncing from the support, and that is continuously happening, then you can think for a trade from these levels. The most important thing to trade this range is to use stop-loss, which will help you to get out with the trade when the range is broken.
To find buy entry, look for the price to come to the support. If the price comes to the support and bounce higher and the Stochastic Oscillator lines are crossed each other upside from the oversold level, then enter on a buy trade. Your stop loss should be below the support level with 15 pips buffer, and your take profit should be towards the resistance level.
To find sell entry, look for the price to come to the resistance level. If the price comes to the resistance level and rejects, and the Stochastic Oscillator lines are crossed each other downside from the overbought level, then entry a sell trade. Your stop loss should be above the resistance level with 15 pip buffer, and your take profit should be towards the support level.
Which Timeframes to Use
To trade ranges, the best time frames are H1 and D1. You can find short term entries on the 1-hour chart, while you're looking to scalp the market with small gains. On the other hand, on the Daily timeframe, people usually look for long term entries because on the daily chart distance of the support and resistance is huge, which can provide good entries and also good profits. As well as to trade on the daily timeframe you need to provide bigger stop-loss, which can harm your trade if the trade goes against you.
Traders have been using the range trading method for decades, which proven as the most profitable strategy. This strategy can be useful for beginners, who don't have much knowledge about the price action. This range trading strategy works very well with high accuracy and can generate a good amount of profit.