Range Trading Secret Strategy

It is always more difficult to swing trade ranges as compared to swing trading trends

. The reason being ranges are more difficult to identify as compared to trends. A trend is very easy to spot on the chart. The security price action will be rising steadily of falling steadily. Identifying ranges reguires the use of technical indicators known as oscillators. These oscillators are also known as non trending indicators.So if you want to swing trade ranges, you can use the ADX (Average Directional Index) oscillator. If its value is less than 20, it means that the security is ranging. An ADX value of more than 20 means that the security is not ranging and is perhaps trending! A value of more than 30 is a sure indication that the security is trending.There is no point in trading a range if it is not wide enough. Suppose, the stock price is moving back and forth between $55 and $60. This gives a range of $5 not good enough to even cover the trading costs like commissions that you have to pay per trade or for each buy or sell order. But if the range is wide enough something like $10, in that case range trading can be profitable as you will be able to make profit after covering the trading cost in the shape of commissions.Before you start planning range trading first determine the strength of the range. A range that has been in force for a longer time has more chances of continuing in the future. You need to check how many times, the stock or for that matter the currency pair or the security price touches the support and resistance before bouncing back. The more the price action bounces back and forth between these two horizontal levels, the more the chance that these support and resistance levels will persist in the future.This is very important that the support and resistance levels are almost horizontal. If these lines are not horizontal rather they are slanting up or down, then this is not a geniune range. A true and geniune range needs to have almost horizontal support and resistance levels between which the price action bounces back and forth.How to enter a range? Use the stochastic. When the stochastic crosses the moving average from an oversold level, it is a buy signal. Place the stop loss slightly below the support or the price at which you entered the trade. Your take profit is almost the same as the range. In the above example, we had used $5 as the range. This should be your take profit. So when range trading, you buy at the support and sell at the resistance. This way, you can make nice profit!


Range Trading Secret Strategy

By: Ahmad Hassam

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