The strategies differ in several different ways and while some traders prefer to trade with the trend, others prefer to undergo range trading within established limits of a market.
LEARN Structure PARALYSIS. Key Levels/Trend Lines that KILL Your Deposit!!! (forex trading)
Both strategies have drawbacks but both also create potential for making good profits. The style that you choose depends on your own preference, risk profile, your trading goals, as well as current market situation.
Range trading, as the name suggests, involves trading within a narrow range. That range is usually between an established support and an established resistance level.
With this strategy, the trader is looking to make profits by entering and exiting the trade near to the support or resistance levels. Traders who use this strategy usually aim to buy low and sell high. The expectation is that the price of a currency earn bitcoins quickly without investment will eventually revert to the other side of the established range.
Indicators and Candlestick patterns are useful tools for identifying the best times to enter these trades. In the picture above you can see a very nice trading range. While the lower level of the range was a strong support zone, the higher level of the range was formed by the red descending resistance zone. This can be also considered as the triangle chart pattern. Also note how the market was bouncing from both zones and the Price Action patterns signaling reversals from the zones.
- Investing in a bitcoin site
- Are You a Trend Trader or a Swing Trader?
One drawback to range trading is trading from levels following a trend the profit potential is limited due to the fact that entries and exits are made within narrow support and resistance levels. However, if the trader is comfortable with smaller profits which add up over time, range trading may be worth consideration.
Apart from trading within the boundaries of the resistance and support levels, a range trader may also opt to trade breakouts.
Nerves Of Steel?
This means that the aim is to profit from the breakout of the range. The trick is accurately predicting which direction the breakout will take place if at all. In the chart above - you can clearly see the situation where the breakout of the range happened.
Than one Pin Bar pullback followed and the huge bullish trend was established. This will take place for a while before a new trend develops and it usually takes place after a breakout of a range happens.
Usually it is quite easy to predict how prices are likely to move once the boundaries of a range are clearly established. A range trader takes advantage of these facts and aims to make the maximum profits out of these types of situations.
Trend following is a popular strategy among forex traders. It essentially involves identifying trends and trading in accordance with those trends. In other words, if prices are trending up, the trader would place buy trades and if prices are trending down, the trader would place sell trades in order to profit.
If the market is flat and there is no trend, the trader would wait until the next up or downtrend develops before entering his trade. Compared to range trading, trend following can be a simpler, more straight-forward strategy.
Trend Following Theory by Michael Covel
Whereas range trading usually takes place over relatively short timeframes, trend following trading from levels following a trend advantage of the patterns that have formed over longer timeframes. Once these patterns are clearly established, the trader expects that similar patterns are likely to continue going forward unless there is a trend reversal.
The aim with trend following is to buy high - after a bearish correction - and expecting continuous upside move, and sell low - after a bullish correction - and expecting continuous downside move.
The most favorite way to enter these trades is to wait until an uptrend pulls back a little first before buying or waiting until a downtrend pushes upward first before selling.
By doing so, if the market continues against your intended position, the position can be exited when losses are small. On the other hand, if the market moves in the direction that the trader intends, there is the potential to make very profitable trades.
This was a great trend following opportunity. It is important that longer timeframes are used to establish the existence of trends. Then the trader can look at multiple timeframes to make decisions in accordance with his preferred trading timeframe.
Range Trading Versus Trend Following
Both price action as well as other indicators such as moving averagesmay be used to determine the strength of a trend. The stronger the trend, the more likely it is to continue and the greater the potential for profiting by trading in accordance with that trend. However, there is no guarantee that the trend will continue. If this occurs, the aim should be to keep losses to a minimum. However, the aim in any strategy should be to minimize potential losses. This can be done by a proper money management as well as analyzing current market situation, and choose appropriate trading style - to follow the trend or to trade in a range.
Definition[ edit ] Trend following is an investment or trading strategy which tries to take advantage of long, medium or short-term moves that seem to play out in various markets. Traders who employ a trend following strategy do not aim to forecast or predict specific price levels; they simply jump on the trend when they perceived that a trend has established with their own peculiar reasons or rules and ride it. These traders normally enter in the market after the trend "properly" establishes itself, betting that the trend will persist for a long time, and for this reason they forego the initial turning point profit. A market "trend" is a tendency of a financial market price to move in a particular direction over time. If there is a turn contrary to the trend, they exit and wait until the turn establishes itself as a trend in the opposite direction.
All Rights Reserved. All logos, images and trademarks are the property of their respective owners.
How to Build A Trend Following System That Works
High Risk Warning: Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Any opinions, news, research, predictions, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice.
FX Trading Revolution will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
They rely on government policy, economic projections, price-earnings ratios, and balance sheet analysis and so on to make buy and sell decisions.