Forex and daily range

Have you ever thought about the daily range of a currency pair? If you have been trading for some time, you know that currency pairs tend to reach the extent of their daily range at some point in the New York session.

The truth is that with a bit of technical analysis , a trader can oftentimes determine the general area where a currency pair will be exhausting its daily move, reversing, and trading back into its daily range.

This simple, but powerful trading scenario is the backbone of the range expansion reversal strategy. In this article, we will break down the specifics of this trading strategy, and with a little personal tweaking, it could become a valuable part of your overall trading approach.

The Range Expansion Reversal Strategy is essentially a reversion to mean strategy. Reversion to mean is a statistical term that refers to the following mathematical law: Therefore, in this strategy that means that as a currency pair exhausts its daily range each day, it tends to reverse at some point and return back into the average daily range; thus, this strategy is called range expansion reversal strategy-as a currency pair exhausts its average daily range, we are looking to fade the daily momentum in anticipation that the currency pair will return back into its daily range.

Currency pairs do not move an infinite amount of pips per day. In fact, under normal market conditions, a currency pair generally moves within a relatively predictable range known as the Average Daily Range.

Average Daily Range is calculated as follows:. This can be done be done manually, but the best is to use an ADR indicator. Your forex platform should have that available.

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You should be able to see the ADR over any number of days you choose. It is best to look at the ADR over the last 5, 10, and 20 days. If the numbers are all similar, say pips plus or minus a few pips, then that gives you a good idea that the currency pair is generally moving about pips in current market conditions.

You want to let price make its move between During this time, the market will begin to form the HI and LO of the day. Take a look at this chart: You can see the day opened at midnight est at 1. Then as London opened up, price fell to a low of 1. Now, during the NY session, you know where price may find support if it keeps moving to the downside or resistance if it moves strongly to the upside.

Assuming the ADR is pips, then the euro should find support somewhere around the 1.

This number is calculated by taking the HI of the day 1. Conversely, if the low at 1. This number is calculated by taking the LO of the day 1. You now have a general idea of where price is going to find either support or resistance during the NY trading session. The chart above is a 4 Hour Chart.

You can see that the resistance level of 1. First of all it is the previous swing HI on the 4 Hour Chart, and to the left you can see that this area has acted as strong support for several days.

The green shaded boxes show several failed attempts for price to move above this price area.

Forex Education: All About Trading Ranges

To the downside you can see that the 1. Now that price has broken through this level, it should act as support if the euro does continue to move down during the NY trading session. You can also see further to the left in the green shaded box that the 1.

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Now, you have a trading plan. You have confirmed support in the 1. Now, you should have a solid, basic understanding of the principles behind this strategy. In Part 2 of the Range Expansion Reversal Strategy, we will discuss each of the following:.

Continue to part 2 of the Range Expansion Reversal Strategy. We recommend you to read this article on common technical patterns. You can also find more information on fibonacci retracements and projections here. Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit.

The high degree of leverage can work against you as well as for you. OptiLab Partners AB Fatburs Brunnsgata 31 28 Stockholm Sweden Email: You are using an outdated browser. Please upgrade your browser to improve your experience. World's best forex deals and strategy. Range Expansion Reversal Strategy Part 1 Powerful FX Strategy: Range Expansion Reversal Strategy Part 1.

Average Daily Range Currency pairs do not move an infinite amount of pips per day. Average Daily Range is calculated as follows: Determine the Daily Range of A Currency Pair over X number of days This can be done be done manually, but the best is to use an ADR indicator. In Part 2 of the Range Expansion Reversal Strategy, we will discuss each of the following: Entries Profit Targets Stop Loss How To Avoid Potential Losing Trades Using A Few Proprietary Tools And more… Continue to part 2 of the Range Expansion Reversal Strategy We recommend you to read this article on common technical patterns.

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