Strategy

Trend and range in forex trading

What is a range in forex trading?
Range on forex chart

A range is price movement within a range of obvious highs and lows (resistance and support), and it is depicted on a chart as an image of sideways price movement.

  • The highs and lows of a range need not be parallel, so a range need not have the same highs and lows, it can form a square on a chart but it may also form a triangle.
  • It is the opposite of a trend, whether bullish or bearish.
  • A range shows uncertainty in the market. Where neither bulls nor bears are in control of price action, a range occurs.
  • Inside a range, there may be trends (mini-trends) on lower time-frames, so if the price of a forex pair ranges between a distinct high and low level on the daily chart, there may be trends on the 12-hour charts and lower.
  • A range within a trend is a period of uncertainty where the market “takes a breather” before resuming a trend.
  • Range traders use patterns and indicators to make trading decisions.
  • Range trading may have limited profit potential depending on the distance between support and resistance levels.
Trading opportunities within trends

Many swing traders trade inside trends by buying and selling at the range boundaries.

Trend traders trade breakouts of a range where the range was a breather inside a trend.

Price action traders often trade price action movements on lower time-frames so ranges may not affect them as much as it affects trend traders.

What is a trend in forex trading?

The most basic definition of a trend is “a sequence of higher highs and higher lows (bullish trend) or lower highs and lower lows (bearish trend)”

A trend is the opposite of a range in that it depicts an observable direction in price action. You can see whether the price is moving up or down.

Trend trading is popular because it is easy to observe. Because of the price action, many traders prefer trend trading because they find it easier to anticipate what the market will do.

Trend trading depends on the belief that trends will continue rather than reverse, based on Newton’s Law of Motion, although Newton’s laws may apply to all trading circumstances.

CADJPY trend ranges
Range vs Trend trading

Individual traders may have personal preferences depending on their trading personality and time available for trading, but in general, one type of trading is not better or worse than the other.

The requirement for success in any one of the trading preferences is that the trader must realise whether the market is in a range or a trend, and understand what lies at the root of the price movement.

When that is established, it is a case of executing your trading strategy.

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