Can you profit in a ranging market?

I have had success swing trading trends by using a couple moving averages, multiple time frames, and price action.

Over the past couple months, I've had more time on my hands so I've been developing an intraday momentum system using multiple timeframes and heiken ashi.

When it comes to intraday trading (strictly 8-12 EST for momentum) I've learned that the most important thing is to determine the climate of the market. A momentum system will get killed in a ranging market and vice versa. Eur/Usd seems to range between 1pm EST and 6pm EST

I trade eur/usd, so for example pretend that during the London session, there was lots of good news, then during US there's lots of bad news. Now we have the ingredients for strong bullish momentum (doesn't mean you'll get it sometimes it will be reverse). Days with less news seem to range more.

Today is one of those days that has not had any news.

To develop a trading plan for ranging days I will need these things:

1) How do I determine if the market is ranging or trending?
2) If ranging, How do I determine where/when/which direction to enter?

For 1, I could look at the news that has come out during London and the news that will come out during the US session.

Next I can pop on some bollinger bands to confirm that the market is ranging.

In addition to those two things I can use my brain and look at what price has been doing as it approaches the most recent turning point.

For 2, Maybe RNs, Pivots, S/R from a higher time frame, and extremes of the BB can be my hint as to where.

When is an interesting question for me. I really like MTF, but I'm not sure how it fits in yet.

I like the idea of using price action to determine entry but I'm worried that there won't be enough profit margin if I determine my range on the same time frame that I take my entry. If I'm using a 5M for my range and a 1M for my entry, is price action on 1M even reliable enough? (of course I will have to answer all of these questions over time I'm just putting them here for future reference)

I'm curious about stochs in situations like this.

I don't have any problem with indicators, but I'm wary of taking buy/sell signals from them. I would probably just use stochs to feel good about my PA entry.

Ok so the whole time I've been typing this I've noticed a couple potential trades.

Today has been a no-news day, and for the past 2 1/2 hours (since the market opened) we've been stuck in a 30 pip range.

Since NY open there have been three pin bars, an inside bar, and an outside bar. Like five seconds ago another pin bar formed. (all of these at the swing high/lo s)

3 of the PBs aren't perfect (the open/close weren't inside the body of the previous bar) --including the one that just closed that's not on the chart I posted.

The vertical line is NY open. At that point I don't think we would have identified the range from technicals yet, but the range could have been anticipated from the lack of news coming out.

Of course I would not have taken all of these, but this is just an illustration of patterns I might look for using candles that are happening right now.

This is the same PA as the last chart, just zoomed in. On the left side of this chart you will see a black vertical line, it's the same line in the other chart showing NY open at 8am.

A is an imperfect PB. A this point you might sustpect the trend from London to still be in tact, the trend was down.

B is another imperfect PB except this one is at support, oversold, and at the lower BB. This looks like the best trade on the chart to me.

C is a double high lower close/inside bar. It's not at an ideal location, probably would have been a non-trader.

D is an outside bar.

E is a poor pin bar at support.

Look between B and E at support, there is a nice pin bar I forgot to circle at support.

A, C, and D all happened around RN xx50. I'm not sure how significant this should be at this point.

I like price action but on this small of a time frame I'm not ruling out indicators.

What if I set up a 5M and a 30sec or 1M.

I could get my range from the 5M (in addition to SR from the 1H) and take entry signals from the 1M.

Who knows what kind of entry signals. If price action isn't very reliable at this TF (which, it is important to note, may no be an accurate statement), then I'm not above using indicators here, I suppose. It doesn't seem right to take buy/sell from indicators, but maybe on a small time frame in a range with MTF it may be okay. Only time will tell.

Ok so lets say I've decided that it's a range and we are at the bottom of the range. I could switch to the 1M or 30S and look for multiple indicator buy signals. Who knows, maybe PSAR and MACD haha. It just doesn't seem right but I will observe it and see what happens.

Here is an example of what i mean with an indicator based trade.

It's the same PA from this morning again.

On the 5M price pokes out of the BB and is oversold.

On the 30S, the 5 EMA crosses the 12 EMA.

If you're targeting the middle BB that's 10 pips from the cross -2 pips from entry/exit so that's 8 pips, and realistically speaking you could have expected 5-8 pips from that. Who knows what kind of stop you would use, yet another thing I'll have to iron out with time.

Hey, came over from other thread-
Have also been observing this range, it's unusually isn't it for the eur/usd at this time of day??

I'd use a tight SL (4 pips ish) for that trade because a range channel usually has well defined and firm edges so if it breaks by more than 4 pips it's likely to be because of a break out which could move quickly and lilely not come back into the channel for profit atall or before a large pip move away.

Having said that, you may want to look at the underlying trend and base SL on that. If there is a good up trend on the 5m chart then the range could be seen as consolidation before a further move north. If so, buying into a bar at the bottom of the range could be seen to be more likely to end up in profit than selling a bar at the top of the same range. Therefore a 4pip stop for a sell and a 10pip stop for a buy in a range with positive larger TF trend support could be the kind of idea? Or only take positions in range channels in direction of undelying trend in anticipation of a range break out?

Wow than you very much for that comment buddy.

I will take note of this in the future.

I especially like the idea of buying in a longer term up trend, anticipating a breakout.

I think 1/2 off the table and stop to break even could be the answer. If I end up with a decent %Win I have no trouble holding a position for days, even weeks. My biggest wins have been ones I've added to several times like that but on a much longer time frame.

Again thank you for the insight my friend.

No worries, thankyou as to be honest I only thought of it because of your question as I've tended to avoid ranging periods before or seen them as a total loss. But when you sit infront of one for 4hrs like today (!) it gets frustrating not getting a decent signal so it's defo something I'll be working on.

Obviously there will be a few touches on the inside of the oppostie channel wall in a range before the breakout to the trend side (and a few small win trades) so not having an automatic TP set would be a good idea to make the most of the breakout when it comes.

Interestingly the first range bottom channel line became new ranges upper channel line (approx).

Looking at H4 you can see price is now about 20pips off the bottom channel line of an 5week old up trend. So looks like the move tommorrow could be a bounce to the upside...unless that was a double top at 33100 on 6th and 9th.

There have been too many days of 4 hours of a tight range. Here's a small poem. It may be because it's the summer.

At first it would eat my account.

Then I would sit out.

Then this thread came about.

Perhaps the idea of going long at the bottom of the range in an uptrend, taking half off at the other end of the range (SL to BE), and repeating each time price gave a signal off the bottom, and holding in anticipation of a breakout could be a strategy to be used earlier in the trading day (starting with London). If we're going into the afternoon maybe we could just snake around if we got good at it we could make a killing.

I was thinking if we were on a higher time frame we could look for the good 'ol 123 reversal, but with the 30 sec we might have to use indicators like MACD and RSI together to spit out a signal once we've decided it's time to drop down to look for one.

As I was typing about that entry, this happened:

Price was at the top of the new channel, oversold (5M). On the 30s, RSI comes out of oversold territory and MACD crosses down.

Perhaps you could put a limit order just under the candle the arrow is pointing at, or you could enter a short market order.

I changed the settings on RSI to 6 periods, and changed the overbought/oversold levels to 50. It seems to work pretty well so far looking for a signal from a cross of the 50 line with a MACD cross as well. It feels weird typing this stuff because I've always had such a bad impression of indicators. They definitely seem to work better during a quiet, ranging market, with MTF and S/R.

I think it's interesting that even though MACD started crossing up at the bottom of the channel on the 30 sec, while the 5M price was at the bottom of the channel and oversold, RSI kept us out of a bad trade/exit.

I like that idea a lot as it means you wont be caught out taking profit and closing all positions just before a nice breakout. Good one. Price action at the channel line should give a good signal with a slight pause, or ofcourse you could just jump in with a trade the opposite way when it hits the line. It seems a lot of the time price will move quickly away from line before you get a good signal but if you can tuneup your indis to do so must be good. Nice poem by the way, but don't quit the day job


Oh yeah, as you touched on in other thread, what are you ideas for determining if a range has begun? It's not easy to differentiate between start of a range and a trend change or such like. I guess price much touch a line 3 times to be considered a support/res price so maybe same rules for range. Problem with that is a range might only have 3 touches on each side before a break out making trading that range impossible before it's gone!

Hey buddy I don't have too much time but I'd like to say for the start of the range I think I'll be looking at time of day and news coming out, then 1H S/R and watching how price/BB reacts...gotta go!

Hey,
News events - yes very good idea especially if price is waiting to decide which way it is going to go based on what the news says. So ranges must often/sometimes form before big news?

Well I'm not sure but from my own observations I've seen that the more traders are anticipating some news, like NFP last week or FOMC yesterday, the more the market will range going into it.

When London closes, eurusd takes a couple hours to wind down and will generally range until Tokyo gets rolling, so that's what I mean by time of day.

I would imagine that there would be a range before each market opens, but they would probably have different characteristics.

At 8:30 EST today we have trade balance coming out and that's the only bit of info for two hours until we get crude oil inventories, then at 2:30 we have the federal budget balance coming out.

It will be interesting to see what happens today.

If the data is all in agreement (all positive or negative for USD) maybe we could see some sustained movement in one direction.

If the data is conflicting, perhaps we could see some chop?

And what about our idea about markets ranging while waiting for news? Since we have three bits of news spread out so much does that mean that the market has lots of time to wait for the news and therefore lots of time to range?

I think also that we should keep an eye on commodities and equity markets today, as I suspect these will help us gauge the market climate.

I like the way you are approaching this obviously news informs the institutions that make the market go so it makes sense to watch news when looking for and anticipating the formation of trends and periods of consolidation. I haven't been into news before as I said but would love to see a chart of todays price action marked up with when news came out so we could see any impact that releases may have had?

Dead times in the market (outside london and NY) are very interesting in terms of range periods there is defo scope for a scalping strategy there but i haven't looked into those times myself. For sure SL's are important tho because very flat can turn very suddenly outside busy hours. I always try to watch gld and oil for correlation as they can push and pull pairs around sometimes just by a few crucial pips. Gotta go walk the dog now keep em peeled!

Wow there's so much stuff we have to cover. Let's do this.

followup on the wedge

A surprisingly negative trade balance came out today at 8:30 and price pushed down through eurusd bull stops.

Equity markets in the US panicked on the data and demand for USD surged pushing eurusd down.