Trading on a ranging currency pair...what strategy is used?

There is a Forex strategy whereby you identify a ranging channel in a currency pair and then place both long and short orders above and below the channel in order to make profit when the currency pair breaks out and trends in either direction.

Does anyone know what this strategy is called? I would like to do more research on it because it seems like a very simple way to trade and would be perfect for a newbie like me.

It’s a simple breakout strategy. Unfortunately there is no easy money, often fake-outs occur where it will break in one direction and then quickly reverse and break out in the other direction. Alternatively it will reverse back into the channel and then breakout again, at this point you may have reversed your position but now the market has resumed what your original position was. T_T

Keep studying and growing with the huge learning curve that is trading. :slight_smile:

Thanks! Point taken. Isn’t that why we would place an order a certain number of “buffer” pips above and below the channel to avoid these fake-outs? And combined with the proper risk-to-reward ratio, we can hope to become profitable in the long run?

I am just beginning to explore this strategy and hope to be successful with it because it is simple and straight forward. I hope I’m not being too idealistic.

Many ways to trade it. Often the best strategies are simple.
Work hard studying the strategy and trade it as best as you can.

Why do you want to trade ranging pairs, there is usually at least one trending pair you could consider.

It’s called “straddling”.

(It’s much more commonly used - and discussed - in the field of options trading than in forex trading, and there are reason for that. :wink: )

It seems that way, to some. Granted: it’s superficially an attractive proposition, but the reality is typically rather different. Unfortunately, as is so often the case, understanding the detail of [U]why[/U] requires quite some experience, which by definition you don’t have just when you [I]most[/I] need it; and isn’t trivially easy to summarise briefly.

I’ll try, though … (it usually ends up not being “briefly”, when I try … :8: )

For the purposes of becoming profitable, overall, expectancy matters much more than win-rates: making steady profits safely isn’t about “what proportion of trades you can win”, it’s about “winning more collectively from your winning trades than you lose collectively from your losing trades”. Straddle trades can have high win-rates, but the realities and practicalities of using this approach for forex trading often predicate many small wins and few big losses, and that’s stacking the deck against yourself.

In practice, unless you have a lot of understanding and experience of market movements, it tends not to be a recipe for success because of all the whipsaws within ranging markets.

Finding something that’s trending (or having the patience and discipline to wait until something you trade is trending) and [I]entering trades in the direction of the underlying trend[/I] is a far better and more productive approach, overall. In spite of the fact that markets are - in conveniently tradable time-frames - ranging more often than they’re trending.

The bottom line is that you’ll almost certainly do much better if you approach “entries” from the perspective of [U]finding good places to enter long in an uptrend and to enter short in a downtrend[/U].

Long term, successful trading is all about probability functions, and so is [I]learning to trade[/I]: it’s a good idea to concentrate your time, effort and energy on approaches that have been well observed to work for a higher proportion of aspiring traders, even without understanding all the reasons behind why they have done so.

In summary, I strongly advise against [I]starting out[/I] by trying to learn to trade ranging markets.

(Not the greatest or clearest explanation, I know, but at least I didn’t write a “book” about it. :8: )

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thank you for your explanation and words of caution. It is always nice to be given a reality check when I have little experience to tell me otherwise.

What I do not understand is the following:

Is this not the same situation a trader would face when trading a trend? Unless I’m misunderstanding. Do traders go for much larger wins when trading on trends?

The reason I like straddling is simply because I don’t need to identify trends. I find that identifying trends retroactively is a trivial exercise. But, when it comes to identifying trends in the present, it is a whole other story. Often, trends reverse shortly after testing a support or resistance line two or three times, so by the time I’ve identified it, I do not know if its next move will be a reversal.

Depends what kinds of trends we’re talking about. Intraday trends you have to trade on the same day in and out so reversals come early.
Daily/Weekly/Monthly the trend lasts longer and you go for big wins.

Essentially you take many small losses and then some big wins which pay for all the losses.

What lexys was saying there is that it’s not about winning more trades than you lose. It’s about making a bunch of trades and then turning a profit from them.
The Straddle trades you’ll be making a lot of small wins, but one loss will evaporate all your earnings. So lots of profitable trades but the sizes of wins and losses are vastly different.

Also to mention, your idea of it’s easy to identify trends retroactively but in the present it’s hard. There’s another way to think about this.
I mentioned that there are different kinds of trends, based on a timescale, if you are looking for a long term trend you’re looking for trades that have reached a new high or a new low. This means you’re looking for an established trend, one that is easy to see, then trying to ride the continuation of that trend.

Trade a strategy that works for you, but make sure you understand your strategy on a deep level. Otherwise it gets hard to justify to yourself why you should follow it and you’ll end up taking more impulsive trades.

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Very often; yes (sometimes with part of their position open, having “scaled out”, i.e. taken some profit and covered all dealing-costs with some of the position, and letting the rest “run” - and sometimes it can run a long way, if the trend continues for a long time … in contrast to a range which is likely to be a smaller movement).

This is true.

It may help you to have an objective, scientific, unambiguous definition of what a “trend” is, within the time-frame you’re looking at, for the purpose of either a directional bias or opening a trade.

I agree. I’m not suggesting for a moment that it’s easy. One has to develop a system that can handle all the uncertainty with appropriate risk management.

It may be that your way of doing that successfully will involve trading ranges instead of trends, but the reality is that that would make you a very rare exception.

Thank you Nyad55 and lexys for your objective point of views.

It definitely helps a newbie like me focus in the right direction. I will continue studying trends and pay attention to them as I develop a strategy that suits me best.

I will try to develop as mechanical a system as I can using a demo account, my only fear being that results in a live account will vary drastically from a demo account.

Using support and resistance zones, you can find ranging in the currency pair. You can find how to trade in ranging market in the following image.


  • Jim