Forex Trend Lines

Trend vs Trading Range

Traders may get confused telling a trend from a trending range while it is very simple to distinguish both.

Trading range does not present a clear picture of the market direction. It makes it difficult to tell whether the market is heading up or down.

That's because traders could not find those familiar patterns of higher highs and higher lows (for uptrend) or lower lows and lower highs (for downtrend). What traders do see is randomness in tops bottoms formations order.

Let's look at trading range illustration:

So what we can see is that trading range is actually a sideways pattern. It can be spotted often after a strong market move or near important support resistance levels where the market is trying to regain its strength to advance to the next level.

It is quite difficult to take right trading decisions in a ranging market. Therefore once spotted, it would be a good idea to walk away from charts for a while.

Does anyone trade during range bound markets?

Yes, many do.

The first group consists of traders who don't know yet that they are trading in a ranging market. Such unawareness often results in a losing streak for them.

The second group consists of prepared traders, who intentionally came to take advantage of the range bound conditions.

In order to trader profitably in range bound markets one has to have a special range bound trading strategy for that.
Usually such strategies consist of momentum and volatility indicators like Bollinger bands, RSI, Momentum indicator etc.
For example, with Bollinger bands indicator traders will be looking to trade off the upper and lower bands, where the market would be expected to reverse in order to continue its ranging path.

To your trading success!
Jeff Boyd