Do you prefer to range with the pair or await a breakout and ride on it? The answer to the question depends on quite a few factors, with the most important one being the trader’s own experience.
Some pairs trade in a flat range for quite a long time. The trader can wait for the currency pair to get close to the bottom and buy, in order to sell when it bounces higher.
It also goes the other way around: selling the pair when it is close to the top and closing the position with a buy when it falls. That’s range trading.
Things to watch out for with ranges
Look out for flat range, not uptrend or downtrend channels. These can be more tricky.
In this pattern, it is important not to be greedy: don’t try to maximize your profit with the full range. Getting part of the move is good enough and sustainable.
This kind of trading has a better chance to succeed when it goes together with the general trend, if there is such. If the smaller time frame points to a steady range, but a wider look is bullish, buying in the low end is more favorable. When the bigger trend is bearish, selling at the top is more favorable.
Breakouts
Other traders prefer a different strategy – they watch the flat range trading and wait for a breakout. A breakout will usually yield a sharp move. In some cases, the extent of the move is equal to the extent of the range. This isn’t always the case though.
This pattern usually means more waiting and less trading – breakouts take a long time to boil, and they tend to be sharp and swift.
But, there are often false breaks, whereas the first move is just an initial test before the actual move. Be prepared for false breaks.
The advantage is that these moves are more distinct.
Which is better?
Every currency pair has its own characteristics. So some pairs are better for range trading and others are better for breakouts. Some of them aren’t good at all.
As currency pairs have their characteristics, so do forex traders. More solid people will tend to ranges, while more emotional people might prefer the breakouts.
The best way to know what works best for you is to test: you can start testing potential pairs and patterns with a forex demo account. See where you are more successful in the long run. Pay attention to the overall gains and to the number of wins, and not only to one successful and amazing win.
Practice makes (almost) perfect. There’s no easy way.
Further reading: 5 Most Predictable Currency Pairs.
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