Forex pairs probably only trend strongly about 20 – 30% of the time and the rest of the time they will trade in a range. While every trader likes to be riding big trends for big profits, you can still make a lot of money range trading if you know how to do it correctly In this article, we will look at a simple swing trading method you can use for big FX profits.

So how do you range trade? Let's look at some simple tips, you can use to build a range trading strategy for profit.

Establish the Range

First you need to look at levels of support and resistance which will give you the range. In broad terms its the more tests of support and resistance the better. The minimum of course is 2 tests of either but you should be looking for 4 or more to trade. Once you have established the support and resistance (either sloping or straight trend lines) you need to think about executing your trading signals.

Test of the Range and Triggering your Trading Signal

the same method will apply to a test of support or resistance and now, we will look at a simple method for buying into the bottom or selling into the top of the range.

Watch for prices to approach the level and then, you need to decide what will trigger your trading signal – don't just execute a trading signal and hope! Look for proof of a loss of momentum, as the price approaches either support or resistance.

You can use momentum oscillators to do this and whichever ones you choose, the more overbought they are, when they come into test resistance and the more oversold they are, when they come into test support the better. If they are overbought or oversold, this means that there will probably not be enough momentum to carry them through the level you are selling into.

There are many momentum oscillators you can use but the most popular are the Relative Strength Index ( RSI), Average Directional Movement ( ADX), Moving Average Convergence Divergence ( MACD) and the stochastic of which there are two – the fast and slow stochastic and the fast stochastic should be used in swing trading, because its more sensitive to short term price movements. Just pick a one or two you like and use them, to help you time your trading signal.

Many traders don't like to use indicators and prefer to use price action only and in terms of doing this, the most popular method is to use candlestick charts which offer an insight into the psychology of traders which is graphically indicated by the candles construction.

Setting the Stop and Target

The biggest mistake range traders make is to have their stop to close – the level of support or resistance you are trading into is not a brick wall! You will often see, a move through the level you are trading into by 10 -20 pips or so which takes out all the stops that are clustered to close and then prices move back the other way.

When range trading, we like to give the market room to breathe and don't want to get taken out with all the losing traders, so we normally use a wider stop of 50 – 100 pips.

In terms of targets don't wait for a test of the other side of the range because, you could soon see a bounce back against your position and you will see your open profit eroded or even worse, end up with a losing trade. Take your profit early and move to the sidelines and then wait for the next opportunity.

Final Words

If you want to learn how to trade currencies then a range trading strategy is easy to learn and have confidence in and you can easily master this form of trading in a few weeks.

Once final tip would be – monitor a lot of pairs and only trade the best opportunities and if the range breaks in a big way and momentum is increasing, don't be afraid to go with the break as a new trend following phase could be starting. Ranges always break so be alert to switch from range trading to trend following, when an opportunity presents itself.