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Sometimes, the market gets locked in a large trading range extending from 150 to 300 pips. These large trading ranges get formed when central banks try to intervene in the foreign exchange market in order to stabilize their currencies within a certain range. This is done to boost exports or discourage imports. First, you need to identify a trading range using an ADX (Average Directional Index). If the reading on the ADX chart is below 20, it means that the market is consolidating. You can further confirm it with the DMI (Directional Movement Index). After confirming that the market is in a consolidating phase and trading between a range of something like 150 to 300 pips, you are ready for applying this trading strategy. When the market rallies towards the resistance level, big players like the large banks and financial institutions enter the market and start selling aggressively creating more sellers than buyers. Consequently prices fall. Similarly when the price action reaches the support, big players think that the currency pair is now oversold or underpriced, so they start buying. This buying pressure bounces the price action back again from the support and it starts to rise. What you will do is buy at the support and sell at the resistance. This is the essence of this range trading strategy. When the price action nears the resistance level, you are going to switch to the 30 minutes or 60 minutes chart. Wait for a bearish candlestick pattern like the Hanging Man to appear. This candlestick pattern only appears at the very top of the price action and once it has made an appearance it means that the price action is now going to start its downward movement. Go short when you find this candlestick pattern on the chart. Now switch to the larger timeframe like the daily chart and look for the support on the trading range taking the ride back down to the support. Once the prices approach the support level, big banks and financial institutions will again jump into the market and this time start buying. This buying pressure will force the market to take a U turn again. So as the market approaches the support level again, you switch back to the 30 minutes or 60 minutes chart from the daily chart. Now, you should wait for the Bullish Candlestick Pattern to appear. This bullish candlestick pattern can be a Hammer. Hammer only appearing at the very bottom of the price action. After the appearance of a true hammer, price action reverses itself and starts to move up again. This is a simple trading strategy that can be summarized by saying buy at the support and sell at the resistance. The beauty of this trading strategy lies in the fact that in case of a breakout taking place, there will be no candlestick pattern appearing telling you to buy or sell, this way you can trade the breakout as well. Trading a breakout can be highly profitable.
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Mr. Ahmad Hassam has done Masters from Harvard. Get the Ultimate Swing Trading Software FREE! Discover an award winning Forex Trading System with an ROI of 2956.16% per month!
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