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    How to Trade a Range: Trade the Most Interesting Market in the World
    How to Trade a Range: Trade the Most Interesting Market in the World
    How to Trade a Range: Trade the Most Interesting Market in the World
    Ebook107 pages1 hour

    How to Trade a Range: Trade the Most Interesting Market in the World

    By Heikin Ashi Trader

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    About this ebook

    How to Trade a Range


    Trade the Most Interesting Market in the World


    Financial markets are predominantly trading in trendless zones, which traders call trading ranges or sideways markets. It then appears that they earn money when a market is in a trend and they should avoid trendless markets, because here there is nothing to write home about.


    Despite this apparent finding, most short-term trading strategies rely on the trend-following model, although it is demonstrably difficult to implement. Most traders are more or less looking for a bigger move. The experience shows, however, that trading "moves" or "trends" is not that easy. Either the trader recognizes the trend too late, or the movement offers hardly any opportunities to enter.


    There is, however, a specialized group of traders who do not care about trends. They do exactly the opposite. They trade when the market is in a range. This book describes the methods and tactics of these traders. It is not about how to identify a range and then to trade the outbreak from it, but how to trade the range itself.


    Table of Contents


    1. Introduction to Range Trading
    2. What Is a Range Market?
    3. Look to the Left!
    4. How Do I Draw Proper Support and Resistance Lines?
    5. In Which Markets Can You Operate Range Trading?
    6. How to Trade a Range in Practice?
    7. Where Should I Place the Stop?
    8. Questions of Trade Management
    A. Should You Close the Trade Before the Weekend?
    B. Should You Use Trailing Stops in Range Trading?
    C. What Should You Do if the Trade Goes “Nowhere”?
    D. Should I Push the Stop Closer to the Market?
    9. Examples of Range Markets
    A. Trading Ranges in the Foreign Exchange Market
    B. Deeper Examination of a Sideways Period in the E-Mini
    C. Deeper Examination of a Sideways Period in the FDAX
    10. Advanced Strategies
    A. Opportunistic Limits
    B. Fakeouts
    11. Trend Channels (Channel Trading)
    12. What Is Really Important
    13. Range Trading for Day Traders and Scalpers
    Glossary


    About the Author


    Heikin Ashi Trader is the pen name of a trader who has more than 17 years of experience in day trading futures and foreign exchange. He specializes in scalping and fast day trading. In addition to this, he has published multiple self-explanatory books on his trading activities. Popular topics are on: scalping, swing trading, money- and risk management.

    LanguageEnglish
    PublisherDAO Press
    Release dateOct 27, 2018
    How to Trade a Range: Trade the Most Interesting Market in the World
    Author

    Heikin Ashi Trader

    ​Heikin Ashi Trader is the pseudonym of a trader who has over 19 years of experience in day trading futures and currencies. He traded for a hedge fund and then went on his own. He specializes in scalping and fast day trading. His scalping book "Scalping Is Fun!" is an international bestseller and has been sold more than 30.000 times. His books have been translated into 11 languages.

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      Book preview

      How to Trade a Range - Heikin Ashi Trader

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      1. Introduction to Range Trading

      Traders usually speak of trend markets and trendless markets when characterizing market conditions. It then appears that they earn money when a market is in a trend and should avoid trendless markets, because here there is nothing to write home about.

      This view is the logical consequence of a market philosophy, which observes the behavior of financial markets mainly on the appearance of trends. This is, in my opinion, a point of view that traders should question. What traders perceive as trends on a chart are often no more than rare anomalies.

      The rule is that financial markets are predominantly trading in trendless zones, which are difficult to define. It seems market participants take a wait-and-see attitude at such times. It is true that here, too, contracts change the owners, which can cause some volatility. However, these transactions are not big enough to trigger a significant movement that traders can identify as a trend.

      Traders buy and sell as always, but they do it at prices at which the market players seem to be unanimous. There are also highs and lows, but these are limited even if the trader can identify them on the chart. These extremes then form the lowest or highest prices the market participants are willing to pay. When prices reach these extremes, the trader observes that the market tends to make a 180-degree turn and run toward the other extreme.

      In trader language, we speak in this case of a sideways market or a trading range. Since most traders are trend-oriented, they avoid such market phases or close positions as the market moves into such a phase. Then they wait until the next signal comes. These traders hope that the market will move and take up the previous trend again.

      I do not want to criticize this way of thinking. It is a legitimate and possibly profitable trading philosophy, which, of course, works particularly well when markets are predominantly in a trend modus. However, if this does not occur, the trend trader has difficulties achieving his goals.

      To illustrate the problem more closely, a simple look at the currency pair EUR/USD says enough.

      Image 1: EUR/USD, daily chart, May 2015 to October 2016

      The picture shows the trading of the EUR/USD in a period of about 16 months. Undoubtedly, there were downward or upward trend movements from which a trader could have traded profitably. Looking more closely, however, one quickly realizes that the pair was not in a trend movement for most of the time, but simply traded sideways.

      I have marked some of these sideways periods in the chart in yellow. If you counted the number of trading days in which the market was in this trendless mode, you would quickly find it was the overwhelming majority of the days. In other words, trends are the exceptions, while sideways markets are the rule.

      Now some readers could accuse me of deliberately selecting a sideways phase in the EUR/USD.

      Image 2: EUR/USD, daily chart, June 2014 to February 2015

      Anyone looking at the period June 2014–February 2015 in the EUR/USD will undoubtedly see a trend clearly pointing downward. This is hard to deny. Looking more closely, however, one can see that the EUR/USD also went sideways on most trading days (yellow zones in the chart). The days when the market clearly went in the trend direction form the minority.

      Seen from the bird’s perspective, the market players seem to drive the pair downward. They sell the euro and buy the dollar. For this orientation to really pay off, however, as a trader you need the proper amount of patience. In some of these sideways periods during this trend, it took more than a month before the market moved back in the desired direction.

      When you are an investor or a trader who acts in the medium or long term, you can rely on this appreciation of the dollar and sit out such a phase confidently. However, the question is: can you do this as a short-term trader who wants to earn money by trading currencies?

      Despite this apparent finding, most short-term trading strategies rely on the trend-following model, although it is demonstrably difficult to implement. Most traders I know are more or less looking for a bigger move. Whether they call themselves a day trader, scalper, or whatever.

      In the evening (or on the weekend), when everything is said and done on the market, traders are wondering why they have not managed to take this or that move by day, although it appears obvious by looking at the chart.

      They do this because they assume they will best meet their financial goals if they could catch one of these larger moves every now and then. Then, they say, I will be successful as a trader.

      At the same time, small, specialized groups of traders exist who do not care about these trends but do exactly the opposite: they trade the trendless phases. It is comprehensible. If you look at a financial chart as a beginner, your eye first falls on the big movements, which are taking place from time to time. In addition, beginners ask themselves: what do I need to do to benefit from such a movement?

      Interestingly, the vast majority of trading literature also deals mainly with the detection of trends. This applies not only to the books that explicitly refer to trend following, but also to most of the books about intraday trading. Although short-term trading is a different game than trend following or investing, it is mostly about how to catch the big intraday moves. When you talk with day traders, you realize that most of them are spending their time looking for this kind of market movement.

      However, there is an alternative to this type of trend hunting. I call it range trading, although it can appear in quite different variants. Before I started writing this book, I consulted trading literature for what other traders had to say about this topic.

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