Most beginning traders are told to stay out of ranges. Unfortunately, if you heeded this advice you would only get to trade 20 percent of the time. That’s because currency pairs such as the EUR/USD are always trying to find equilibrium in the market. In other words, price typically stays range-bound 80 percent of the time.
Let’s say you’ve become more comfortable with trading and want to explore other strategies besides trend-following. Also, you may be frustrated with chasing exotic pairs that are eratic in their price action. You want to trade the stable majors, but they seem to be range-bound all the time. What do you do?
Try these steps:
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Determine if your current chart is rangebound. Hint: look for large price movements up and down without much follow-through. Also, there will be a lot of tails on the candles. If you’re confused about the price direction, it’s in a trading range.
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Divide your chart into three sections (blue lines on the chart below).
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Go long when price reaches the bottom third. Go short when price reaches the top third.
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In both cases, take profit in the middle (scalp).
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The red lines in my example chart below represent where your stop should be for both long and short positions. While most traders have their own method, I prefer using the same distance as I have for each of the sections in the range. The main point is, you’re only going to get scalps in ranges anyway, so you may as well let your trades breathe.
