Forex Range Trading inevitably involves Trend Trading

Here are my observations to date:

When trading Range Trading, I am looking at a short term period, usually 1 min to 15 mins charts.
Should I then, short at the top of Bollinger band or long at the bottom of Bollinger band?

To answer this, I should take a look at the larger period charts, eg, 1 hour or 1 day- to find the larger trend. If the hourly (or daily) chart shows a bullish trend, then, I should enter long at the bottom of the Bollinger band - NEVER short at the top of Bollinger band. Why?

Because there is an inertia for the price to go up. If the price were to break from the range channel, there is a tendency for it to go up.


The reverse is also true. Let's take a reverse scenario. Let's assume the price is now ranging when I look at the 15 min charts. Should I short at the top of Bollinger Band, or, long at the bottom of Bollinger band? To answer this, I would look at the hourly (or daily) chart. If I find that the hourly (or daily) chart indicates a bearish trend. Then, I would short at the top of the Bollinger band - NEVER long at the bottom of the Bollinger band. Why?

Because there is an inertia for the price to go down. If the price were to break out of the range, there is a high probability it will go down.

What about Stop Losses, where should I put them?

First determine how much USD you are willing to risk, if you are willing to risk USD10, then convert it to pips, eg, 100 pips, and put your stop 100 pips below your long position, or, conversely 100 pips above your short positions.

Also, always enter a position when it is ranging - never when it is trending. By the time you spot a strong trend, it is usually too late to join the trend - this is because, you will never be able to spot a trend and join early. A trend, by definition, is a trend when there is already a clearly upward price movement or vice versa - by then, the trend is at risk of exhaustion. Instead, wait for it to consolidate (range), then enter a position in the direction of the trend as described in the above paragraphs.

In, Oanda Trading Platform, to convert price to pips. Look at the Account Summary Window on the left. Take the Unrealized P & L value and divide that with the value shown in the Profit Pips box on the top right. That will give you the price/pip. Then assuming you are willing to risk USD10 for Stop Loss, take 10/(price/pip).

I have also found MACD and Momentum Histogram to be unrealiable. Even though the trigger cuts the MACD and indicates a signal - the same trigger can almost immediate cut the MACD line again in the opposite direction! Be careful. The MACD histogram is equally unreliable. Even though the histogram may show a momentum exhaustion - indicating a price reversal, yet, int he next instant the momentum histogram may quite unexpectedly pick up again! Be forewarned.

Also, Stop Losses should never be tight. You should put large stop losses and trade very small units. Tight Stop Losses will knock you out probably 8 out of 10 trades! But in my experience, putting large Stop Losses will knock you out 2 out of 10 . Again be careful. That 2 out of 10 loss may be huge because of the large Stop Losses!

Other psychological observations:

1. Once a position is entered, don't bother to watch the monitor. Only check it at regular intervals. Impatience is the enemy. Watching a price going the wrong direction may cause you to close the position prematurely before it has a chance to turn around. Or, conversely, you may take profit too early and lose out on potentially larger earnings.

2. Never take revenge by entering an opposite direction once you lost a trade. By then the trend is almost always nearing exhaustion. Remember, the price has already travelled a long distance to hit your large Stop Loss.