Range Scalping Strategy – Is Range Trading and Scalping Reliable?
Statistically, the market is only in a trend mode for 30% of the time and the rest of the time 70% it spends in ranging conditions. Since the Forex market spends most of the time in consolidation having a range trading strategy is essential in order to survive in this business. Range scalping is not hard, however, you do need a high level of discipline and a strategy to determine when a trading range is in place. Going forward you’re going to learn a simple and yet effective range scalping strategy. Scalping is not for everyone as you really need to be a fast thinker and have the discipline to stick to your plan.
What is Range Trading?
Range trading it is trading of the market when it is moving sideways where the price action bounces up and down between support and resistance (also see chart below). Essentially the trading ranges can take place in many different shapes not just horizontal ranges, but there are also flat ranges or parallel uptrend channel or parallel downtrend channel.
The typical way you trade the ranges is to take a long position when the price hits the support level and take a short position when the price hits the resistance level, that’s essentially the concept we’re looking at.
Risk management should be the most important aspect of your trading and it’s more important from a range trading perspective. The bigger the range is the bigger the profits should be and in this regard, we’re always going to look to trade a range that it’s at least 100 pips in profit margin.
Range Scalping Strategy Trading Rules
In order to identify a trading range, we’re looking for two or more turns to the downside from resistance and to the upside from support levels. Within a trading range, you can draw trendlines and often times these trend lines are very good triggers for getting into a range trade. A breakout of these intra-range trendlines is telling us that momentum is shifting and a the probability of a bounce from support or a sell-off from resistance is more likely to happen. I order to have more confidence in our trades we can use an oscillator like the Stochastic Oscillator for overbought and oversold conditions in the market.
Range Scalping Strategy Buy Sell Rules:
- Buy Signal: A breakout of a downward trendline, after it hit support. The Stochastic Oscillator also has to be in oversold conditions above the 70 level.
- Sell Signal: A breakout of an upward trendline, after it hit resistance. The Stochastic Oscillator also has to be in overbought conditions below the 30 level.
- Stop Loss: Above resistance for short trades and below support for long trades.
- Take profit: For longs, target the ceiling (resistance) of the trading range, and for shorts, target the floor (support) of the trading range.
Since the market spends 70% of the time in ranges, this simple range scalping strategy will help you be on the right side of the market and since the markets are fractal in nature you can apply the same principles on any given time frame.
If you like this strategy, then you probably will like the EURUSD Super Scalper EA that we have created to automate our own trading.
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