The first step of any range trading strategy is to find the range. This can be done by identifying support and resistance on the chart. To begin, add a 30 minute chart to your screen, which includes a minimum of 1 weeks’ worth of price data. Resistance is your price ceiling and can be found by connecting 2 or more price peaks on your graph. Next, identify values of support by connecting a series of swing lows. These areas may not line up to the pip, but remember to draw these lines as parallel as possible. Above we can see a sample range on the EURUSD currency pair.
When trading an active range, it is always important to plan your entry
as close to a support or resistance value as possible. Above we can see a sample range setup developing on the EURUSD.
Just as trending markets can come abruptly to an end, so too can ranges.
Eventually when price breaks from its range, any existing trades should
be closed. When initiating a buy order, stop orders should be placed
above resistance. Any easy way to determine the exact placement, is to
take half the value of the range in pips, and add this to the top of the
range. When buying support, stops can be managed in the same way;
subtract half the range in pips from support, to find your final stop
placement.
When it comes to profit targets, basic range trading strategies will use a standard 1-2 Risk:Reward ratio. This means that you limit placement should look for twice the amount of pips relative to your stop. For example, if a sample range has a 100 pip range, a minimum 100 pip profit target is suggested along with a 50 pip stop.
