Forex Range Trading Systems
Forex market can be either in trending or ranging conditions. It is quite difficult to make a trading system work for both conditions. There are many trading systems that work in trending markets, such as swing system and breakout system. I would like to focus on range trading systems here.
Forex market often ranges than it trends. That’s the reason why it seem ranging systems may work better. On the other hand systems for ranging market will not give you as much profit as systems developed for trending market. It must be realized that profit is limited to the size of the range. At the same time the losses are also limited compare to the trending systems which is an advantageous side of trading in the range.
I would like to discus a range trading system in this article. I successfully use it for EUR/USD pair during the Asian session when market usually is ranging.
All you need to do apply two indicators to your chart. The first one is Bollinger bands. Keep the standard parameters. The second indicator is Relative Strength Index (RSI). Parameters of RSI are also standard with the levels of 30 and 70.
Now the combination of these two indicators will give us entry and exit signals. Keep in mind that this works only in ranging market. Whenever price touches the upper Bollinger band and RSI touches or even crosses above the level 70 enter short position. When price touches the lower Bollinger band and RSI crosses below the level 30 go long.
These signals are also exit signals for the opposite position. So fro example you have a short position open and you received signal to go long. Firs close the short position then open the long position.
Always remember to use sound money management. Since there is no guarantee that market will not start trending. Usually if I get three consecutive losses with this system that means market is trending and I switch to other trending system.
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