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Trading ranges can be a real obstacle for beginners as well as experts traders. These are periods in which prices show a lateral trend, often irregular, and in which the technical signals that in regular conditions would generate gains falter, then vanish immediately. The bad news is that this is actually the predominant condition of the market. The good news, however, is that trading ranges can offer ample opportunities for the wiser traders.
For the purposes of this discussion, we will focus on two types of ranges and we will call them short term and long term. What these ranges represent for you and your trading depends on the time frame you are trading on. The short term is one in which prices can move from top to bottom or from bottom to top within a few candles (less than 10). It is usually not enough for the formation of a trend. The long term is that in which the movement occupies at least 10 candles, usually more, a time frame that allows the trend to form.
The long term range is the easiest one to use in trading, because price fluctuations include the time needed to develop a trend and that trend is identified by the indicators. On the daily chart, this type of range can last from a couple of weeks to several months, depending on the asset and the particular market conditions. The idea is to follow the trend in its movement towards the upper or lower end of the range.
When you detect a movement within the long term range, switch to a shorter time frame to try to guess. For example, USD / JPY was in a range on the daily chart for the indicated time period. Now it is moving upward within the range. It would perhaps be advisable to confirm the trend over a shorter period of time (for example, a 4-hour chart) and to establish the optimal entry points through the indicators.
Once you move to the shorter time frame, you can start looking for signals that confirm or deny the prevailing trend. In this particular case, the trend is upward and therefore we are looking for bullish signals. Several signals were received including candle, price action, MACD and stochastic.
Signals can be captured until the price reaches the resistance target at the upper end of the range. Once the level is reached, traders can expect a moment of volatility and a possible reversal or breakthrough. If resistance is confirmed, there is a good chance that the range bottom will be changed.
The short term range is more difficult to use in trading for various reasons, including volatility and time between fluctuations, which is the time that prices take to move from the top to the bottom of the range. In this case the traders have two possibilities.
If the range is particularly small or destined to last for days or weeks, the thing to do is to grasp every touch of support or resistance. This means looking for times when prices reach or exceed the ends of the range and then open operations in view of an imminent inversion.
This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that such movements or levels may reoccur in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.
GENERAL INFORMATION ON RISKS:
CFDs are complex instruments and carry the high risk of losing money quickly due to the leverage effect. 76% of retail investor accounts lose money when trading with CFD through this provider. You should make sure you understand how CFDs work and if you can afford to take the high risk of losing your money.
Source: IQOption blog 2018-11-27 15:00:10