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Range Trading
Written by Martin Grippen. Visit also my Google Plus site ,Facebook site and my blog about Forex.
In Forex trading is it essential to have a plan or a strategy. It is a description of how to trade. Some of the subjects a plan contains are a trading strategy, Stop/Loss level and a take profit level.
Trading strategy
A trading strategy is how to trade.
Some trade with indicators as the Bollinger Bands, Stochastic, Williams %R, Linear Regression and Parabolic SAR.
Others trade a lot of short trades during the day. They use a system as a trading strategy. They look at the chart and buy and sell if the chart move as the system describe. The strategy is called Scalping and is described in the article "What is Scalping?"
There are a lot of strategies the trader can use in trading Forex. In this article is the mindset on Rang Trading; the strategy will be explained later in this article as the terms Stop/Loss level and Take profit level first will be described.
Stop/Loss level
A Stop/Loss level is a level where the trader stops the trade if the trade goes in the wrong direction.
Take profit level
The take profit level is the level where the traders take the profit in a trade.
Range Trading
Range Trading is trading in a range.
The trader selects the currency pair he wants to trade in; look at the price pattern in the chart. He wants to find patterns like the one on the image; a zigzag pattern where the price goes up and down.
The trader sets the Stop/Loss level and Take profit level; the Stop/Loss level is set by choosing the lowest price in the range. If the trader finds the Stop/Loss level as the right level he will choose the level. If he thinks the level fit better higher on the chart he will move the level a bit higher on the chart. The Take profit level is chosen as the Stop/Loss just between the highest prices.
The Stop/Loss level and Take profit level are called channels. The price between the two channels is the median; the median indicates if the market is bullish or bearish. A bullish market is a market that is moving upwards; a bearish market is a market that is moving downwards. The channels could be considered as the standard deviations used in the Bollinger Bands or the over-bought and oversold situation in the stochastic indicator.
How to trade in a range
The trader enters a trade when the price is near the Stop/Loss level. It is the same strategy as when the trader trades with indicators for example the Bollinger Bands or Linear Regression etc. The indicator crosses the price line and the price starts to increase; in range trading is it when the price line crosses the lower channel and starts to rise.
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