Spotting ranges in forex markets

by Thinus Briers | Jun 4, 2024 | Forex Analysis

spread in forex

Spotting ranges in forex markets

This week I wanted to post the first part of a two part ‘series’ on ranges in forex trading. Those of you that have joined me for my live session, will know that I have used range identification to great success recently (in conjunction with the M2 system) to call some great trade setups. The GBP/CHF trade I’ve spoken about for months now is up 550+ pips for example. All from a textbook range/ break out trade.

Let’s have a look.

In forex trading, ranges refer to the price intervals within which a currency pair oscillates without trending in a specific direction for a certain period. Understanding different types of ranges is essential for developing appropriate trading strategies.

Primary types of ranges in forex trading:

Horizontal Range:

Definition: This occurs when the price moves sideways between a consistent high (resistance) and low (support) level.

Characteristics: Prices repeatedly touch the support and resistance levels but do not break out of this zone.

Strategies: Traders typically buy at support and sell at resistance. Range trading indicators like RSI, Stochastic Oscillator, and Bollinger Bands can be helpful.

Contracting (Symmetrical Triangle) Range:

Definition: Prices form lower highs and higher lows, converging into a point, creating a triangle shape.

Characteristics: Suggests decreasing volatility and a potential breakout as the range narrows.

Strategies: Traders often wait for a breakout above resistance or below support and then trade in the direction of the breakout.

Expanding (Broadening) Range:

Definition: Characterised by higher highs and lower lows, forming a megaphone pattern.

Characteristics: Indicates increasing volatility and uncertainty in the market.

Strategies: It’s challenging to trade due to the unpredictable nature, but some traders might look for breakout opportunities or trade the extremes with tight risk management.

Kind regards,

Thinus

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