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3 Simplest Range Trading Strategy Types Explained

Various range trading strategy types are becoming increasingly popular with beginner traders, as they seek more versatile techniques and approaches to generate maximum profit. This particular approach refers to the intraday technique. This is why it is frequently used by day traders.

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While the term “range trading strategy” may sound confusing for newbies from the start, in reality, the approach is quite different to implement despite the financial background. In this article, we will provide a detailed review of three major range trading strategy types as well as explain what is range trading in Forex.

What Is Range Trading in Forex?

It is a specific day trading technique that relies on identifying oversold or overbought currencies. Support (oversold) periods are the best timeframe for range traders to enter with a buy position and sell when during resistance (overbought) timeframes.

The key benefit of a range trading strategy is the fact that it can be implemented at any time. It does not come with limited periods, which makes it one of the most effective techniques to use in the market. On the other hand, it is unlikely to meet the needs of long-term investors, as the strategy is very weak while the market is trending.

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3 Simplest Types of a Range Trading Strategy

To become a successful range trader, one is supposed to have a firm grasp combined with patience and discipline. Beginners generally use three major trading strategies. They involve Rectangular, Diagonal, and Continuation Ranges. Let’s have a closer look at each type.

1. Rectangular Range Trading

Those who choose this type of strategy will have to deal mainly with horizontal and sideways price movement. As a rule, it takes place between the support and resistance levels. When moving, the currency pair price plots a rectangular within the lower and upper resistance lines. The key benefit here is that the rectangular range is easy to spot even without using special technical indicators.

  • Strategy Pros: the strategy delivers faster trading opportunities, as it comes with quite a shorter timeframe if compared to other approaches.
  • Strategy Cons: rectangular ranges can be misleading, as traders can read them wrongly. To avoid mistakes, one needs to consider long-term patterns as well.

2. Diagonal Range Trading

When used as a specific form of the price channel, diagonal ranges appear to be a conventional and widely-used chart pattern. The main idea behind this particular type is the ability of the price to ascend or descend through the sloping trend channel. During diagonal range trading, you can watch the price narrowing down, broadening, or even plotting a rectangular.

  • Strategy Pros: when using diagonal ranges, one must be prepared for unexpected breakouts. On the one hand, it opposes the trend movement, providing you with a leg up and enhanced profit capabilities.
  • Strategy Cons: on the other hand, it may take months for some of the breakouts to take place.

3. Continuation Range Trading

With continuing ranges, all possible chart patterns can qualify involving flags, pennants, wedges, etc. The main idea is to unfold within a trend, which makes it possible to use the strategy when trading either breakouts or ranges.

  • Strategy Pros: these range types occur very often, which is always a sign of an instant breakout. A perfect option for those, who seek instant profit opportunities.
  • Strategy Cons: it is sometimes hard to evaluate the trade that occurs within the trend. This fact makes the strategy quite risky for amateurs.

If you decide to pursue any of the above-mentioned range trading strategy types, you need to clarify and realize not only different range types but also the tactics behind each of them to have the full picture. Besides, don’t forget to learn how to identify the trend. Also, you will need to utilize some risk management tools as well. After all, always keep in mind that range trading is just one of many approaches. Do not consider it as the Wild West and always trade wisely.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.