If you’re trading GBP/JPY, or one of the many other pairs that are moving so painfully slowly right now, you might think that the past two days have been boring. Well, the truth is they have been pretty boring.
Ever the optimist, I think there is a great learning opportunity in a market like this. Being a successful trader is all about being able to read price action. I hate to use a stupid analogy, but it really is like learning to read a new language. Until you can fluently read price action, you will not be a consistently profitable trader. So, you should see this ranging period as an opportunity, an opportunity to see price action trading in ranging periods. It is also an opportunity to learn a little about range breaks. So let’s start the learning
The basics of trading ranges in Forex
When a pair is ranging ,the candles tend to shy away from support and resistance areas. Even though the highest and lowest points of the range seem random, you will find that they usually aren’t. This is pretty logical, but if you didn’t know already, it is something to take note of…
… Why you ask?
When price breaks significant support or resistance, it is an indication of renewed strength. When price action is ranging, renewed strength usually means a breakout.
You should know that when a pair is in a range it indicates that the bulls and bears have equal amounts of power. This means that there is equal amounts of buying and selling power, so the pair cannot move a significant amount in either direction.
What needs to happen for price to move, is for either buyers, or sellers, to take control of price. This is where support and resistance breaks come in. If resistance is broken, it indicates that the buyers have control of price. So what do buyers do? They start buying, and price action becomes bullish, like below:
Should you trade this? Well that really is up to you. In trading every situation is unique; I make my trading decisions in the moment. Keep in mind though, taking a range break trade is always risky, so you have to be careful. Sometimes the buyers/sellers just don’t come through, and that means it will fall back into the range.