Consolidating Forex Pairs - Can You Profit From Them?
James Woolley
August 25, 2009
There are many different ways to trade the forex markets. You can open long positions when the trend is clearly up, open short positions when the markets are trending downwards, or you can look for instances where the price appears to be overbought or oversold in order to trade the reversal. However in this article I want to discuss how you can trade range-bound markets.
Range-bound markets refer to markets that appear to be trading sideways in a very tight trading range. There is generally no clear trend present and the wider market is undecided as to which direction the price is going to go. As you can imagine these are some of the hardest market conditions to trade.
The difficulty arises because of the fact that you will often not realise that the price is trading sideways until after the event. When you are trading live you may have every confidence in any short or long positions you may take. However assuming the price is confined within a narrow range, there are still a few you can profit from these markets.
The first is simply to wait for an inevitable breakout from this range, either upwards or downwards. You can either enter a new position a certain number of pips outside of the trading range or you can improve your chances of success by waiting for an initial breakout, followed by a pull-back into the initial trading range, followed by a secondary breakout. In most cases you will find that this second breakout is the decisive one.
The other trading method you can use is to simply trade the high and low points of this trading range. This method is generally more profitable when trading the longer-term charts because these sideways trading patterns are much more predictable. You simply open a short position at the top of the trading range and think about opening a long position at the bottom of this trading range. The great thing about this strategy is that it carries minimal risk because you can set your stop loss just outside of this trading range in case the price breaks out.
Range trading is not something I do a lot of myself because I prefer trading more volatile market conditions. Nevertheless just because a pair is trading sideways does not necessarily mean that you can't profit from the situation. As I've already discussed, you can either trade the high and low points of the trading range or you can wait for the price to break out of this range. Both of these methods can be just as effective.
Click here to discover more profitable forex systems and to find out where you can find the best forex signals.
Range-bound markets refer to markets that appear to be trading sideways in a very tight trading range. There is generally no clear trend present and the wider market is undecided as to which direction the price is going to go. As you can imagine these are some of the hardest market conditions to trade.
The difficulty arises because of the fact that you will often not realise that the price is trading sideways until after the event. When you are trading live you may have every confidence in any short or long positions you may take. However assuming the price is confined within a narrow range, there are still a few you can profit from these markets.
The first is simply to wait for an inevitable breakout from this range, either upwards or downwards. You can either enter a new position a certain number of pips outside of the trading range or you can improve your chances of success by waiting for an initial breakout, followed by a pull-back into the initial trading range, followed by a secondary breakout. In most cases you will find that this second breakout is the decisive one.
The other trading method you can use is to simply trade the high and low points of this trading range. This method is generally more profitable when trading the longer-term charts because these sideways trading patterns are much more predictable. You simply open a short position at the top of the trading range and think about opening a long position at the bottom of this trading range. The great thing about this strategy is that it carries minimal risk because you can set your stop loss just outside of this trading range in case the price breaks out.
Range trading is not something I do a lot of myself because I prefer trading more volatile market conditions. Nevertheless just because a pair is trading sideways does not necessarily mean that you can't profit from the situation. As I've already discussed, you can either trade the high and low points of the trading range or you can wait for the price to break out of this range. Both of these methods can be just as effective.
Click here to discover more profitable forex systems and to find out where you can find the best forex signals.
Print
Email
