This strategy aims to profit from small price movements within a defined range. It involves identifying support and resistance levels and entering trades when the price breaks above or below these levels.
Here's how it works:
Advantages:
Here's how it works:
- Identify a currency pair with a defined range. Look for a pair that has been trading within a relatively tight range for a period of time. This indicates that there is strong support and resistance at the edges of the range.
- Mark the support and resistance levels on your chart. Use horizontal lines to mark the highs and lows of the range.
- Wait for a breakout. When the price breaks above the resistance level, go long. When the price breaks below the support level, go short.
- Set your stop-loss and take-profit orders. Your stop-loss should be placed just below the support level for long trades and just above the resistance level for short trades. Your take-profit should be set at a predetermined level within the range.
- Exit the trade. Exit your trade when your stop-loss is hit or your take-profit target is reached.
- Use a small position size. This will help to limit your losses if the trade goes against you.
- Be patient. Don't force trades. Wait for a clear breakout before entering a trade.
- Use a risk-reward ratio of at least 2:1. This means that your potential profit should be at least twice as much as your potential loss.
- Manage your emotions. Don't get greedy or try to hold onto losing trades. Stick to your stop-loss and take-profit orders.
Advantages:
- Can be profitable in ranging markets
- Relatively easy to learn and implement
- Requires less time commitment than other strategies
- Can be risky if the market breaks out of the range in the wrong direction
- Requires good discipline and risk management
- Can be mentally challenging due to the frequent stops and entries
- Chart 1: This chart shows a EUR/USD currency pair that has been trading within a range for a period of time. The support level is at 1.1000 and the resistance level is at 1.1200.