Forex trading is one of the most profitable and popular investment opportunities for investors around the world. However, it can also be one of the most challenging, especially for new traders who are just starting out. One of the most popular trading strategies in the forex market is range trading. Range trading is a simple and effective trading strategy that involves buying and selling currencies within a specified price range. In this article, we will explain how to range trade in forex using a price chart.
What is range trading?
Range trading is a strategy that involves identifying a range within which the price of a currency pair is likely to remain for a period of time. Traders use technical analysis to identify the upper and lower boundaries of the range. Once the range is identified, traders buy and sell the currency pair within the range until the price breaks out of the range.
Range trading is an effective strategy for traders who prefer a more conservative approach to trading. It is also ideal for traders who are looking to profit from sideways markets, which are often prevalent in the forex market.
How to range trade in forex using a price chart?
To range trade in forex using a price chart, traders need to follow these steps:
Step 1: Identify the range
The first step in range trading is to identify the range. Traders can do this by analyzing the price action of the currency pair over a period of time. The range can be identified by drawing two horizontal lines on the price chart, one at the upper boundary of the range and the other at the lower boundary.
Step 2: Buy when the price is at the lower boundary
Once the range is identified, traders can start buying the currency pair when the price is at the lower boundary of the range. This is because the price is likely to bounce off the lower boundary and move towards the upper boundary. Traders can set a stop loss below the lower boundary to limit their losses in case the price breaks the range.
Step 3: Sell when the price is at the upper boundary
Traders can start selling the currency pair when the price is at the upper boundary of the range. This is because the price is likely to bounce off the upper boundary and move towards the lower boundary. Traders can set a stop loss above the upper boundary to limit their losses in case the price breaks the range.
Step 4: Exit the trade when the price breaks the range
Traders should exit the trade when the price breaks the range. This is because the range is no longer valid, and the price is likely to move in a new direction. Traders can set a stop loss at the opposite boundary of the range to limit their losses in case the price breaks the range.
Conclusion
Range trading is a simple and effective trading strategy that can be used in the forex market to profit from sideways markets. Traders need to identify the range, buy when the price is at the lower boundary, sell when the price is at the upper boundary, and exit the trade when the price breaks the range. By following these steps, traders can successfully range trade in forex using a price chart.
