Thursday, March 26, 2015

When is a trend not a trend

When it’s a range. A trading range or a range-bound market is a
market that remains confined within a relatively narrow range
of prices. In currency pairs, a short-term (over the next few
hours) trading range may be 20 to 50 pips wide, while a
longer-term (over the next few days to weeks) range can be
200 to 400 pips wide.
For all the hype that trends get in various market literature,
the reality is that most markets trend no more than a third
of the time. The rest of the time they’re bouncing around in
ranges, consolidating, and trading sideways.
Although medium-term traders are normally looking to capture
larger relative price movements — say, 50 to 100 pips
or more — they’re also quick to take smaller profits on the
basis of short-term price behavior. For instance, if a break of
a technical resistance level suggests a targeted price move of
80 pips higher to the next resistance level, the medium-term
trader is going to be more than happy capturing 70 percent
to 80 percent of the expected price move. They’re not going
to hold on to the position looking for the exact price target to
be hit.

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