Range traders want to short at the top and buy at the bottom. The best tools for range trading indicate when a currency pair may be overbought and oversold. These technical indicators are called oscillators. The oscillator we use the most at FX Bootcamp is the Stochastics. There are many others to choose from.
The first step in range trading is to identify support and resistance. These price levels will be the floor and ceiling for price action while we are locked into the current range. Because you are creating a trade plan based on selling at resistance and buying at support, you are looking for confirmation to do so.
Just like any trade plan, you are not going to guess that price will respond to these levels. You are looking for evidence that support or resistance did hold. With evidence, you now have permission to consider a range trade. This can be helpful when you first see an oscillating indictor on the chart but in terms of trading success, looking at oscillators only in term of overbought or oversold alone can be dangerous.
This article will expand your view on oscillators and introduce you to a new oscillator that can help you pinpoint and trade market turning points more effectively. SMI helps you see where the current close has taken place relative to the midpoint of the recent high to low range is based on price change in relation to the range of the price. This is a heavy way to start an article but important to know because if you know where price has closed in relation to the recent range or trend then you have a good idea if a turning point is upon you or if the current move still has room to run.
By taking the range of historical prices, you have the ability to anticipate trend changes. Here are the more popular methods to use this indicator to find trading opportunities. However, there is a method you can use to filter out lower probability crossovers.
The way you can view this neutral zone will be filtered in the most recent trend you placed. If the market moves nicely through the neutral zone with the trend in tact then you can tighten your stops or add to your trade if you wish. Technical divergence can happen on the buy or sell side of the chart. Divergence happens when prices are making higher highs and the SMI is not. This can happen on the sell side when price is making lower lows and the SMI is not which would give you an opposing buy signal when price breaks relative resistance.
However, whatever tool you use, we always recommend to keep you trade size appropriate and in line with your overall risk management goals. To contact Tyler, email tyell fxcm. In the course, you will learn about the basics of price action and how to use the clues the market is providing to place trades. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Learn forex trading with a free practice account and trading charts from FXCM.
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