Counter Trend and Range Trades

The market doesn’t always give us clear trends. In this post, i would like to share with you on how you can trade ranging markets as well.

As with my weekly outlook already this week, i mentioned that due to the lack of news, this week’s movements might not get us anywhere. Despite a few bursts here and there, the pairs are quite well behaved, sticking to their ranges.

I took a few range bound trades on G/U. Let me explain my thought process as i took them;

1)Firstly, i noticed a 90 pip wide flat channel formed from 5th Feb till today. I drew my support and resistance lines for the channel formed.

Flat Range Channel

Now, once i have noticed this zone, i wanted price to reach the  upper or lower band and wait for it to fail to break the area. This is where patience is key and you have to wait for it to TRY to break the zone and then fall back into it.

2) As expected, this happened after 2 failed attempts and at the 3rd candle falling back into the zone, i went for a short.

Failed breakout, went for a sell

Notice where my stop loss is. As for the take profit, i could have simply gone for twice my stop loss distance, making it a safe 1:2 ratio. However, i went for more and placed it around 60% move of the previous wave.

3) Almost about 4 hours later, the trade shaped out as we had planned and we realized our profits.

Range Trade 1 takes profit

4) Now, once the price action has hit the bottom support zone, can we go for a buy now? Of course we can!

This is what we do exactly;

Failure to break support zone

After 2 attempts to break the support line, we placed a buy in the opposite direction. Notice where i have placed my my stop loss again. However, for my take profit this time around, it couldn’t even hit 1:2 ratio on my risk as the 60% of previous wave was less than that. Therefore, i just took what it gave me, which shows that the waves are getting smaller and more congested. This will probably be my last trade, for today, as there isn’t much volume left.

5) 2 hours later, this profit target was reached.

2nd Range Trade takes profit

Now, that was step by step execution and screenshots of a live trade as it happened. In this example, we saw how we traded within a range.

Now, in our next example, let’s see how we took a counter trend trade

1) Eur/Usd had tanked suprisingly and i wasn’t there to take this trend downwards. I therefore missed it and after coming back to look at the charts, i noticed that it had already dropped from 1.3750 – 1.3600 . A nice 150 pip move in about 5 hours.

For all the action i saw, there were 5 continuous bearish bars with new lower lows with little or no fightback on the upside(notice hardly any upper shadows). This is therefore a large unprecedented move with no room for correction.

As we know, all  that goes up must come down and vice versa. At this point, after a 150 pip move, with 5 white candles looking at you, most traders, especially newbies, will go in for a short, jumping in along with the “trend”. This is called chasing the market.

However, i was waiting for a correction. My immediate resistance is 50% of the previous long candle. If that was broken, i can contemplate a buy.

As i was monitoring this, it happened in the next 30 mins or so. I therefore took a buy as shown;

Trading Counter Trend

My stop loss will be below my last recent low, which is not visible in this screenshot.

2) In about 2 hours, the trade had moved in our favour for over 50 pips. We scaled out and covered our loss.

Counter Trend Trade

We hope these screenshots and explanations helped you understand how you can think unlike the rest of the market and use a variety of tools to chip away at the market. Trading trends are of course more profitable, but when trends don’t happen, change your tools to pick the lock and make money regardless.

Note : Taking Range trades and Counter Trend trades can be dangerous when breakouts happen. Therefore always keep your stop losses locked in and your risk exposure well managed.

Cheers,
Seeni

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