My Simple Yet Profitable Range Trading System

I have another system thread called the TAW system (https://www.forexfactory.com/showthread.php?t=748815) and it is really the primary method that I trade.

HOWEVER, sometimes market conditions in some pairs are just better for looking at things a different way and trading under different rules. In my opinion the wise trader has several trading tools and systems at hand to use based on the conditions of the market and the conditions of the pair being looked at.

I have what I believe is an INSANELY simple range trading system to be used when a pair ends up range bound or what I call "channel bound."

Here is a look at EURUSD on the 1D.


With those fat lines put up there it becomes pretty brain dead simple to see how the pair has been constantly stuck in a range bouncing off support and resistance for what amounts to most of this year.

But to show an example of what I call, "channel bound" here is a look at AUDUSD on the 1D time frame


Now AUDUSD is fairly new to this channel however today we can see the bounce upward off the channel support point.

Again, you don't have to be a rocket scientist here to see the trade points.

Now with range trading I do set an SL usually a little beyond the area (to protect in case the pair is really going to breakout) and almost always my SL is only about half way into the range on a range bound pair. If you look at both of the charts you can see why that is. Now on channel bound pairs how I set my TP is a little more complex so I'll cover that in video. There may be a few seconds of "dead air" in the beginning.

https://youtu.be/2GV9CEH_Ep8

And let me be clear about something. Most every pair actually moves within ranges and channels. Now personally I don't look for them below about maybe 1H, and really 1D and above is better because the ranges and channels are more likely to "hold" and to provide highly profitable trades. As an example, here is AUDUSD again but this time on the MN.



On the 1D you could see that the channel faced downward. On the MN it's now facing upward. By "happy coincidence" this most recent bounce upward happened to occur right where the support for both crossed which made for a REALLY obvious bounce point.

The good thing about when you have the situation of crossing channels like that is it also gives you an idea for which direction the pair is REALLY going to go moving forward. Combining this method of trading with TAW actually helps to improve the profitability of TAW because, as I said above, really all pairs will move in ranges and channels within the larger trend.

And here is a slightly more sophisticated way of looking at it. This is the EURUSD 1D again but notice how I have two resistance points and two support points. This gives you a better understanding of how the pair is moving and makes trading the range easier. Often this same thing can be done on channel bound pairs as well.

The idea is that sometimes the bounce points aren't at the very top or bottom of the range but can often pause before. By looking at it like this you have more trading opportunities.

To make this a little easier to understand, here's a video where I give the highlights of the system on a range bound pair but more importantly go into the slightly more complex setting of take profit points on a channel bound pair.

https://youtu.be/2GV9CEH_Ep8

IMPORTANT:

The current bounce off support for EURUSD doesn't look like it's going to really hold. Take a look at the H1 time frame and it really looks like the bounce is running out of gas and the pair is just going to consolidate a little before another downward push.

If that does happen that will likely break the range bound channel the pair has been in and the long term down trend I talk about in the TAW system is going to take hold and the pair will end up in a downward facing channel.

Just wanted to give everyone that may be watching the thread a heads up.

A thing about time frames on this system.

Really pretty much every time frame on any cross you can see a pair working in either ranges or channels. HOWEVER, and this is important, the shorter the time frame the more likely that the range or channel will be broken out of.

The range that you can see on the M15 is quite a bit different than that seen on the H1, or the 1D.

It isn't often that I will look above 1D however in the video you can see that I was on the MN for AUDUSD so it's not that I "won't" it's just that for this system I like the time frames a little shorter.

Typically I'm looking at 1D though on occasion I'll look at H1. People have said that will mean there just isn't much to trade because of how long the TF happens to be.

Well think of it like this. Pretty much you can find ranges and channels on EVERY pair there is. That opens up your trading possibilities quite a bit. However, because in this system I'm not really doing a whole ton of analysis before placing one of these trades, I'm much more careful with pulling the trigger and closing a profitable position if I become even a little concerned the market will begin to move against me. This means that my gains in terms of pips per trade aren't all that hot.

On the flip side I can run a TAW position for 100 pips on a routine basis however there are typically fewer trades to make.

edit: typo fix

Real quick, in the last 5 hours there have been four candles without a candle body. This is a bit odd for a thursday, even for the traditionally low volume and low volatility aussie session. I said this already in the TAW thread but it really looks like consolidation before a move. I think that move is going to be another push down, but watch what the market actually does in case I'm wrong and then open your position.

edit: and one more thing to keep in mind is that from now till we get into the Asian session EURUSD has a history of drifting against the trend so don't jump too early.

Real quick, I will be VERY surprised if EURUSD even makes it to 1.23350 let alone past that point. It just doesn't have the volume or momentum to push much higher than it is and this move has softened up the technicals giving room again for more downside. I am further expecting the low from what is now the previously closed candle 1.22834 to be past up by at least a little (but I won't be surprised it passed by a fair bit, at least going the rest of the way to the bottom support).

In fact this is where looking at a pair and what it's doing is part of the "more sophisticated" way of looking at this range bound system.

Probably what I'm going to do is when I do open the position I'll set a TP on half the position at 1.22834 then at 1.22435 for the other half.

I have a couple of posts where I talk about the probability that EURUSD at least (if not GBPUSD as well) is going to start another downward push.

The problem is that Friday is a banking holiday in europe which is going to DRAMATICALLY damper market moves. Keep an eye on the market but Friday may not be a terribly exciting day.

Dear Woohiye,
Thank you for sharing your approach to trading these ranged markets. May I ask what you use the PSAR for?
Kind Regards,
Tzamo

Thanks a lot for the insight.
Pls how do you get to draw those thick lines on your chart?

It's a setting for the line. Put a line on the chart, right click on the chart and go to Objects List. Click on the item for the horizontal or trend line and click edit. You can change the thickness of the lines. You can also set it to be "in the background" so that the candles are over top of the line (which is what you see in my charts).

That's one of the indicators I use as part of the TAW system. I dont really use it for this one I just didn't take the indicator off when I was doing the videos.

How the a journalist chooses to say things sometimes is often indicative of more of their bias than it is of the truth.

You have seen in AUDUSD on this thread a channel facing down, and another longer term channel facing up.

There's a news story here on FF about "AUDUSD bouncing off the lower bound of a down facing channel." or something like that.

The problem is that the bounce occurs where the two channels cross. It's impossible to really say if it's bouncing off the lower bound of the down facing channel or the lower bound of the upper facing channel.

Now, from a trade perspective you play it safe, assume it's the down facing channel, and place your stops closer (assuming you traded the bounce that started yesterday).

But we'll have to wait and see which channel is going to hold, the upward facing channel or the downward facing channel.

From a fundamental perspective, I suspect it will actually be the downward channel. Trump just announced tarrifs on Chinese goods. That's bad for the Chinese economy and by extension bad for the Australian economy.

Now to be fair, China is probably going to keep buying the same amount of metals and grains they had forecast before this happened because China is saying they still expect to hit their 6.9% GDP growth target. That however is unlikely to shift the perception of the issue.

Now that I just said that, AUDUSD is still up for the day however it's a low volume day with the european bank holiday, even a lot of commercial and institutional US traders are taking the day off. We'll have to wait until Monday to see what the markets will actually do.

Looking for a bounce back downward in EURUSD at around 1.23338 or so. Could start as soon as about where the pair is now (1.23259). I doubt we'll see 1,23338 passed by more than a couple of pips before moving back down again and it may not even get that far.

Alert to those following this thread. I had said that I was looking for the supports to break on a downward push of EURUSD.

HOWEVER, there are two stories on FF today. The most important however is this one: https://www.forexfactory.com/news.php?do=news&id=751549

USD hitting a low for global reserves is likely to cause some serious USD weakness on monday which means we're looking at a continuation of the bounce off support and the pair heading (probably rapidly) back up to the TOP resistance line.

It could go back up but eventually break down..i think

I definitely agree. I'm looking for EURUSD to move upward (and probably sharply) over the short term but I believe the long term down trend is going to take hold especially if we keep seeing risk aversion going up from bad economic news.

I posted this already over on the TAW thread however I've discovered that some people are only following one or the other. In my opinion a trader should have multiple tools in their tool bag. Trading the "inside bar" is another trading tool that I explain (including the indicator I use for it) in this video.

https://youtu.be/IrtpM52IsxM

I forgot to mention that the "inside bar" thing should be ignored when it happens late on a Friday ... especially when it's late on the Friday of a holiday weekend. The "setup" is really not valid in those instances.