The range trader waits for prices to enter into sideways ranges. The price could be coming from an uptrend or a downtrend, but there are likely to be pauses along the way. The range trader will select a direction to trade and then wait for either the failure of the price to penetrate resistance or support. The price could in fact close above resis- tance or support but then proceed to fall back. Using a setup to confirm the reversal the range trader is looking for a 15+ pip move. In the U.S. dollar–Japanese yen (USDJPY) 15-minutechartshowninFigure14.1,we see a setup with standard Bollingerbands, slow stochastics (5, 3, 3) and moving average convergence divergence (MACD) histogram These indicators are all lined up and provide a high confidence that the setup for the trade is reasonable. The setup aligned itself for several bounces off the top and bottom trades. Important to note in the setup is the convergence of the upper channel line with the upper Bollinger band. The range is about 40 pips. This means the trade has to conserve slippage and trade off the top or bottom.
Range Trader Rules
1. Use hourly charts to determine entry points and daily charts to confirm
that a range trade exists on a longer time frame.
2. Use oscillators to determine entry point within range.
3. Look for short-dated risk reversals to be near choice.
4. Look for reversal in oscillators (RSI or stochastics at extreme point).
5. It is a stronger trade when prices fail at key resistance or hold key support levels (use Fibonacci retracement points and moving averages).
Indicators Stochastics, MACD, RSI, Bollinger bands, options, Fibonacci retracement levels. |
| Range Trader |
Range Trader
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