How to trade a Range - GBPJPY example

Markets generally move in two primary ways: trending or rangebound.

Trending markets are popular among traders for their directional clarity. They offer chances to ride momentum, add to positions, or fade extremes. They also give structure and potential for extended moves.

However, rangebound markets are also full of opportunities. They provide clear levels where one knows when he is wrong and help to assess if prices are elevated or cheap.

(Even though this is always a touchy subject in Trading - everything is relative!)

Markets in range rhyme with a general acceptance of prices, and buyers and sellers balance out.

GBPJPY has been in a large range since September 2024 - let’s dive into how to determine a range on trading charts.

The first step is to spot that moves up, followed by sharp reversals. This will typically be done with two bounces on higher prices and two on lower prices.

The second step is to monitor your moving averages, preferably for a higher period (Above 100): you want to observe some flattening of the MA.

Moving averages are usually sloped in the trend’s direction in trending markets.

A third step is to add indicators such as the RSI or MACD. You will want to see how candles respond to overbought and oversold conditions:

• In trending markets, overbought don't always rhyme with reversals, usually consolidation before continuation of the trend.
• On the other hand, the same conditions will be met with sharp reversals in rangebound markets.
  

You will then want to draw levels where you will place your resistances and supports.

On this example, you can observe an extreme resistance (situated between 198.700 and 200.00) and an extreme support (184.500 to 186.00).

There is also a tighter range:
The intermediate resistance - 195.50 to 196.50
The intermediate support - 189.50 to 190.50

More prudent traders will want to wait for the extreme ranges while traders that want to generate more trades may use both.

The idea is to place a short when we enter the resistance zone and a long when we enter the support zone.

Ranges have different shapes and forms with the usual common idea: prices revert when they are at extremes.

You can either put line levels, though supports and resistances tend to move more in zones, which give a bit less chance for fake breakout signals.

This range in GBPJPY is very volatile, as it is part of this currency pair's nature.

On this example, you may place your stop losses beyond the support and resistance zones.

You can set alarms on your charts to know when you are entering your zones of trading interest then take your decision.

In terms of profit targets, it is up to you, although most guides point towards a risk-to-reward ratio above 2.

Once you have your stop pre-determined, you can use this rule to find where you will take profits.

You can also wait until the other extreme to close your trade.

In trading, there is always a possibility of things changing. This will usually happen around headlines or key economic data events.

Always stay in touch with the latest themes and trends.

Also make sure to always know what economic data releases are expected, as they may change the dynamics of what is expensive or cheap.

Make sure to always watch your orders and take care of your risk.

Safe trades!