If you are new to forex trading it would be a good idea to ease your way into things by finding a strategy that is easy to understand and holds the promise of achieving profitable returns from your trades.
Range trading is a strategy to get your head around before moving on to more complex methods, so here is a look at what support and resistance trading mean and how to use this approach to kickstart your forex trading career.
Taking advantage of predictable price movements
Range trading is one of the most popular forex trading strategies with novice and experienced investors too, mainly because it is a system that is based on the fact that each currency experiences currency fluctuations throughout the day and week that are often relatively easy to define.
Range trading is also known as support and resistance levels and it is a strategy that is a good starting point for inexperienced traders as learning to identify the trading signals is simple in comparison to some other more complex trading methods.
It shouldn’t be too difficult to identify the support and resistance level for a particular currency and once you are armed with this information you have the trading signals you need.
For example, if a currency commonly fluctuates around the $1.10 and $1.40 your aim is to try and buy close to the support price of $1.10 and trade out of the position when you see that the price has risen close to the resistance level of $1.40.
Making trades between these discernable support and resistance levels means you shouldn’t experience a great deal of volatility and you should have the opportunity to make consistent if not necessarily spectacular profits with each trade.
Getting your timing right
As well as successfully identifying accurate support and resistance levels for your chosen currency you will also need to hone your skills in timing your entry to maximize your potential profits.
There are tools available to help you get this part of the strategy right and one of the simplest methods is through the use of an oscillator.
An oscillator is a technical indicator that has been designed to track the currency price using a mathematical calculation. A trader will hold their intended trade until the indicator reaches a specific support or resistance zone, before executing a trade that follows the momentum of the currency fluctuation.
If you are unsure about how to interpret this data or want to get the hang of using your chosen oscillator, it would be a good idea to use a demo account before committing real cash before you have the strategy nailed down.
Another good safeguard that is recommended by many traders is to use a stop loss system. This allows you to manage risk and helps to preserve more of your capital when the market turns against you and your trade moves into the red.
If you are looking to make the most of your forex trading, range trading is not a bad place to start.