The FX Bootcamp Guide to Strategic and Tactical Forex Trading

CHAPTER 13

Range Trading

Eventually, all trends run out of steam. Price just gets too far from the 200 EMA and must return to its equilibrium point, as shown in Figure 13.1.

Price usually doesn’t reverse quickly. In most situations the market exhausts. You can easily see the slow reversals previously discussed as an old man in a hot bath in Chapter 9 by watching the moving averages lose angle and separation. First, momentum will be lost and the 5/8 will braid. Then the 21/55 will flatten. Price eases in a new direction.

Then, as the market slows, the 200 EMA will catch up. Your medium-term analysis will be important here, as you do not know, at this time, if price will indeed reverse or if it will continue in the direction of the prevailing trend after it hits the 200 EMA.

In the meantime, you can range trade while you are in the exhaustion phase. This means you can trade between the bounces. Because the market lacks trend, price will likely be rejected at support and resistance levels.

Savvy traders can take short-term trades in this type of market, buying as support and selling at resistance until the market chooses direction, creating a new trending phase.