Best Online Forex Trading---How to Make Money in a Ranging Market

In my last article, I’ve talked about how to make money in a trending market. Now I’ll discuss about how to make profits in a ranging market. Trending and ranging are two basic scenarios of forex market you can see in forex trading online. Actually, it is the norm for price to range. Prices range 70-80% of the time while trends are quite rare. A ranging market is one in which price bounces in between a specific high price and low price. The high price acts as a major resistance level in which price can't seem to break through. Likewise, the low price acts as major support level in which price can't seem to break as well. Market movement could be classified as horizontal or sideways.

In the range trading, a trader may repeat the process of buying at support and selling at resistance many times until the price breaks out of the range. The downside of this strategy is that when the range is broken, it usually experiences a large price movement in the direction of the breakout. If the breakout direction is not favorable for your position, you could lose badly. So in order to make as much money as possible in range trending, you should be aware of the aspects as below:

Choose the right currency pairs

While major currency pairs offer traders the strongest and longest trending opportunities, cross-currency pairs (currency pairs that do not have the USD as part of the pairing) present the best range-bound trades. Cross currencies are attractive for the range-bound strategy because they represent currency pairs from culturally and economically similar countries; imbalances between these currencies therefore often return to equilibrium. One of the most well-known pair for trading ranges is the EUR/CHF. The similar growth rates shared by the European Union and Switzerland pretty much keep the exchange rate of the EUR/CHF stable.

Determine the range

The basic idea of a range-bound strategy is buying near the low price and taking profit around the high, or selling near the low and taking profit near the high. To indentify if the market is ranging, you need have an idea of the volatility. In a ranging market, volatility is low, and price is just moving within a tight range.
An important way to measure the volatility is using Bollinger Bands. When Bollinger Bands contract, volatility is low and there should be little movement of price in one direction. However, when bands start to expand, volatility is increasing and more movement of price in one direction is likely.