Extreme markets: the thrill of range trading

FX News recommends all Exness traders only trade at opportune times. There are some exciting practices that those more fearless traders follow, which we will explain in this article, but beware: with great profit comes great risk. Prices rarely adhere to range highs and lows in neat and tidy corridors. This makes it far too easy for unexpected ‘overshoots’ that activate ‘stop orders’, or undershoots that miss ‘take profit’ levels. So what can you do when the market is behaving erratically?

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Trading across the range

Range trading is hitting a sell order when the trendline tops and buying when it bottoms. Sounds easy, right? Trading on highs and lows offers the promise of high volatility.  Many traders love the risky ride because it means quick and generous profits. If you prefer the excitement of big swings, revel in the thrill of a big win, and you’re prepared to take on increased risk, range trading might be just what you’re looking for.

A basic overlook of ‘Range Trading’ and how to maximize profits.

Where to start

Range trading means waiting patiently for a breakout to happen, and then cautiously trading in the direction of the breakout. Similar to a sprinting race, trading volatility is not a long game. It’s all about getting that well-timed start. A delay in setting orders can reduce profits, but jumping the gun can end in disaster.

How do you know when a breakout is about to happen?

Breakout tell-tales

One tell-tale to remember is that breakouts are usually accompanied by a dramatic change in underlying economic or political fundamentals. Major fundamental changes can cause a substantial repricing of the exchange rate. This then provides the necessary energy for the exchange rate to overcome the boundaries of the range.

Breakout potential: CADCHF

First, open up the MT4 WebTerminal right now and see what’s happening to CADCHF. 

CADCHF is a perfect example of a main currency pair that is vulnerable to breakout due to changing fundamentals. The Canadian dollar-Swiss franc pair off is a favourite for many CAD traders as it is known for greater stability compared to euro or yen. In fact, the CADCHF pair has been stuck in a range between roughly 0.68 and 0.79 ever since the 2015 lows.

A clear trend is seen and with news in favour of CAD, traders are on standby.

A dramatic improvement in Canadian economic and political fundamentals increasingly points to the potential for an upside breakout on the horizon. The main change has been the securing of the United States–Mexico–Canada Agreement (USMCA) to replace the now-defunct NAFTA deal.

Before the new agreement, the Canadian dollar was under pressure from fears that the US might completely pull-out of trade talks and increase tariffs on Canadian goods. Now that pressure has been removed, it can start to appreciate more freely. The new USMCA includes some tariffs on Canadian goods but they are not as high as previously feared. The removal of uncertainty surrounding the renegotiation process is a major positive factor for the Canadian dollar and at the same time a negative factor for the Swiss franc.

Higher rates on the way

Before the USMCA was finalized in October, the Bank of Canada was afraid to raise interest rates, despite economic growth. Now that the uncertainty has been put to bed, the BOC is ready to raise rates and further drive a stronger Canadian dollar. Higher interest rates tend to attract greater inflows of foreign capital, drawn by the higher returns on offer. Therefore, there is a chance that CADCHF could break higher. If the exchange rate manages to break above the 0.79 range, it will probably continue on to even greater heights.

Bullish trading opportunity

As things stand, the rate remains right in the centre of the range. As previously said, it can be risky to ‘range trade’, but the benefits of such a trade is appealing to many who are looking for fast and significant results. A triangle pattern has formed with bullish connotations and this is offering a compelling buying opportunity.

The breakout would be expected to rise equal to the height of the range (‘x’), or 61.8% of the height of the range for a more conservative estimate. In the case of CADCHF, this would generate a target at about 7 cents above the highs. A very attractive event to say the least.

Three points from five have fallen into place. Forecasts are undeniable.

The triangle is in the process of unfolding and has so far completed three waves: a, b, and c. Triangles must have 5 or more waves to qualify, which suggests two more will probably form. Once waves ‘d’ and ‘e’ have completed the triangle, they will be expected to break out. It is more likely to break in the direction of the trend just prior to formation, which in this case is bullish. Given the bullish fundamentals previously outlined above, the case for a breakout is even stronger.

Watch out for a break above the 0.7693 high, which may be considered as confirmation of a breakout that will lead to a follow-through as high as 0.7800.

FX News recommends you try applying these strategies on your MT4/5 trading platform, starting with the risk-free demo account. Once you are familiar with the fundamental strategies as well as analytic performance, you’ll be ready to take on the current market and start ‘range trading’ with confidence. Stay up to date with FX News and join the Exness traders at the forefront of trading opportunities.

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This article is a marketing communication and does not constitute investment advice or research. Its content represents the general views of our experts and does not consider individual readers’ personal circumstances, investment experience, or current financial situation. This article is not prepared in accordance with legal requirements promoting independent investment research, and Exness is not subject to any prohibition on dealing before the release of the article. Readers should consider the possibility that they may incur losses. Therefore, Exness is not liable for any losses incurred due to the use of its articles.