Range Bound Market Strategy
During moments of limited market volatility, an ideal opportunity presents itself to profit from the zigzag motions in the market. A range bound market is characterized by levels of higher buying pressure, known as a support, and higher selling pressure, known as a resistance. These levels create a channel, where market movement is generally concentrated within these key levels. As major support and resistance levels are defined, range traders apply the unique concept of buying at support and selling at resistance.
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The fact that the market trades around 80% of the time in a range, the range bound strategy can become significantly lucrative to traders. However, traders need also to identify limitations to the strategy that arise when a pair breaks out into a strong trend. Thus, it is essential to know how to take advantage of this strategy and when are the best conditions to apply it.
There are certain currency pairs that best characterizes a range bound market, which is the number one rule to successful range trading. Usually currency pairs that do not have the USD involved in the pair, known as crosses, provide best range-bound opportunities. Underneath is a chart illustrating how a trader could have profited from applying the range bound strategy for the EUR/AUD pair towards the end of this year.
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