For instance, there should be a significant increase in volume on the initial breakout or breakdown, as well as several closes outside the trading range. Instead of chasing the price, traders may want to wait for a retracement before entering a trade.
For example, a buy limit order could be placed just above the top of the trading range, which now acts as a support level. A stop-loss order could sit at the opposite side of the trading range to protect against a failed breakout. Advanced Technical Analysis Concepts. Day Trading. Technical Analysis Basic Education.
Trading Skills. Trading Strategies. Your Money. Personal Finance. Your Practice. Popular Courses. What Is Range-Bound Trading? Key Takeaways A range-bound trading strategy refers to a method in which traders buy at the support trendline and sell at the resistance trendline level for a given stock or option.
Traders place stop-loss points just above the upper and lower trendlines to avoid having heavy losses from high-volume breakouts. Typically, traders use range-bound trading in conjunction with other indicators, such as volume, in order to increase their odds of success. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Related Terms. Trading Range A trading range occurs when a security trades between consistent high and low prices for a period of time. What Is a Channel in Finance and Economics? The term "channel" may refer to a distribution system for businesses or a trading range between support and resistance on a price chart. Bull Trap Definition A bull trap is a temporary reversal in an otherwise bear market that lures in long investors who then experience deeper losses.
Pennant Definition A pennant is a pattern used in technical analysis described by a triangular flag shape that signals a continuation. Ascending Triangle Definition and Tactics An ascending triangle is a chart pattern used in technical analysis created by a horizontal and rising trendline. The pattern is considered a continuation pattern, with the breakout from the pattern typically occurring in the direction of the overall trend.
A reasonable strategy is to employ a stop at half the amplitude of the total range. In other words, if this pair reached 1. Interest rates are the reason there's a difference. The interest rate differential between two countries affects the trading range of their currency pairs. However, for the period represented in Figure 6, however, the interest rates in the U.
K are at bps while in Japan—which is gripped by deflation —rates are 0 bps, making a whopping bps differential between the two countries. The rule of thumb in forex is the larger the interest rate differential, the more volatile the pair. To further demonstrate the relationship between trading ranges and interest rates, the following is a table of various crosses, their interest rate differentials, and the maximum pip movement from high to low over the period from May to May While the relationship is not perfect, it is certainly substantial.
Note how pairs with wider interest rate spreads typically trade in larger ranges. Therefore, when contemplating range trading strategies in forex, traders must be keenly aware of rate differentials and adjust for volatility accordingly. Failure to take interest rate differential into account could turn potentially profitable range ideas into losing propositions.
The forex market is incredibly flexible, accommodating both trend and range traders, but as with success in any enterprise, proper knowledge is key. Department of the Treasury. Accessed Jan. International Monetary Fund. Global Pro Services. Sunshine Profits. Blackwell Global. Bureau of Economic Analysis. Trading Economics. Simpler Trading. KVB Prime. American Express. Your Money. Personal Finance.
Your Practice. Popular Courses. Table of Contents Expand. Table of Contents. The Major Currency Pairs. Significance of the Long Term. Commodity Block Currencies. Crosses Are Best for Range. Interest Rates. Key Takeaways The forex market is driven by macroeconomic trends that can sometimes take years to play out. Article Sources. Investopedia requires writers to use primary sources to support their work.
These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear.
Investopedia does not include all offers available in the marketplace. Related Articles. Partner Links. Related Terms. Foreign Exchange Forex The foreign exchange Forex is the conversion of one currency into another currency. Reciprocal Currency A reciprocal currency in the foreign exchange market is a currency pair that involves the U.
Major Pairs Definition and List Major pairs are the most traded foreign exchange currency pairs.
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A range-bound trading strategy refers to a method in which traders buy at the support trendline and sell at the resistance trendline level for a given stock or. One strategy for range traders is to determine the parameters of the range for the pair, divide these parameters by a median line, and simply buy below the. The basic idea of a range-bound strategy is that a currency pair has a high and low price that it normally trades between. By buying near the low price, the.