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 |
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