Forex Trading Tips - Profiting From Range-Bound Markets

There are many different ways to trade the forex markets. You can go long when the trend is clearly up, go short when the price is 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 currency pairs that appear to be trading sideways in a very tight trading range. There is no clear trend present and the wider market is undecided as to which way the price is going to go. Now as you would expect these are some of the toughest markets to trade.

The problem you face is that you will often not realize that the price is trading sideways until after the event. In real-time trading you may well be confident in opening a new long or short position. Nevertheless assuming the price is stuck in a narrow trading range, there are still a couple of ways you can generate some profits.

The first is simply to wait for the price to break out for this range, either upwards or downwards. You can either enter a new position a certain number of points outside of the trading range or you can increase your chances of success by waiting for an initial breakout, followed by a retracement back into the initial trading range, followed by a second breakout. Very often you will find that this second breakout is the decisive one.

The second trading method you can use is to simply trade the high and low points of this trading range. This method is generally more suited to long-term trading because these sideways patterns are much more dependable. You simply sell short at the top of the trading range and go long at the bottom of this trading range. The great thing about this strategy is that it's very low 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 currency pairs that are on the move. 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 sit back and wait for a breakout. Both of these methods can be just as effective.

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