Saturday, December 10, 2011

How to trade swings in a range

Having a good trading strategy is probably the best thing that a trader has while trying to make profits in the markets. Today I want to discuss one particular strategy that could help you to make good money in a market of your choice. This I will do by explaining how you can trade swings in a range.

A range is a time when securities get stuck within price area that is pretty narrow and prices are confined within it for a very long time. If we take gbp/usd as an example and look at weekly charts starting from the 1st of June 2009 and finishing on the 1st of February 2010 we will see that the pair was stuck in a range. The lower part of the range (which is called support by most traders) was 1.5670 level and the upper part of the range (which is often called resistance by the same traders) was 1.7070 level. So, in a period of eight months the security was confined within a very narrow range of four hundred pips, which is very unusual for such a volatile pair as gbp/usd.

How one could have traded this kind of range? It was very easy to do. You can simply place a buy order when the pair approached the above mentioned support and go with the market till the upper part of the range was reached. When that happened you simply had to place a sell order somewhere near resistance and go down with the market when it would finally turn around and start going down.

I know that it is much easier said than done, but if you practice a lot this kind of trading strategy on a demo account you will definitely learn how to do it. It took me around five years to learn how to trade markets and master swing trading strategy. I know that some people could do it much faster, but that depends on a lot of various factors.