Ranging markets are ones in which prices are bouncing between certain levels and remain in that range for a certain time. They are defined between support and resistance zones.
Prices bounces up and down making pivots of overbought and oversold levels without showing a specific trend direction. It neither moves upwards or downwards just stays in consolidation. Prices don’t make new highs but tend to repeat its highs and fall to previous lows making peaks and valleys.
The ranging markets can be termed as sideways trend or consolidations. Let’s see how it appears on a market chart.
Ranging market on USDJPY, Daily timeframe market chart
From our chart above, you can clearly see how prices bounce up and down ranging between the levels of support and resistance as shown.
In ranging markets, we sell on resistance and buy on support.
Previously, we learnt that at support level, the buying pressure is greater than the selling pressure while selling pressure is greater than the buying on resistance. This implies that there are higher chances of price to reverse as it approaches these levels than break through.
It is very important to combine candlestick reversal patterns with support and resistance to get better signals
Let’s see how you can identify trade signals in ranging markets
Below is USDJPY daily time frame.
From above chart, our first sell (sell 1) signal was triggered by the appearance of a shooting star on a resistance. Sell 2 was confirmed by engulfing hanging man and Sell 3 triggered by a doji. These were all confirmed by a strong bearish candle which resulted into a strong rally down after.
Stop loss on these trades is just on previous high and target is the support zone level/ previous lows zone.
On the support level, we had our first buy (buy 1) confirmed by a hammer candlestick pattern at support. Buy 2 was triggered by an engulfing pattern. Stop loss on these trades is just on previous lows and target is the resistance zone level/ previous highs zone.
Just as we said previously, while trading support and resistance especially in ranging markets, it is always important to have a big eye for major significant candlestick patterns. These give strong confirmations for reversals.
You can clearly notice that every time price bounced of the support and resistance level, there is an addition of a reversal candletick pattern. These are the clear stong trade signals in this case.
Taking candlestick patterns in consideration when trading ranging markets on support and resistance levels will help you to generate strong signals for your trades. This will ultimately increase your chances of having successful trades.
Next we are going to look at some indicators used in ranging markets!
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