HOW HAVING THE KNOWLEDGE OF THE DAILY RANGE HELPS
The forex trader should go for everything that would give him an edge when trading in this challenging yet highly profitable market. Apart from being skilled in technical analysis, fundamental analysis and market psychology, the trader needs to boost his chances with a good knowledge of the daily range.
THE DAILY RANGE DEFINED
Different assets in the forex market exhibit different price movements which are consistent as per the space covered in a period of time though little differences might be seen in the highs or lows. This space covered on a daily space is what is known as the range. Having a knowledge of this would surely be helpful to the trader as he now knows the probable extent of price movement the asset could cover in a day. For example, taking the year 2020 as an example, the daily range of the usd/jpy currency pair falls around 65 pips, all things being equal, while with the gbp/usd currency combination the daily range is between 110 pips.
ADVANTAGES OF THE DAILY RANGE
1. Helps pinpoint entry points: When the trader knows the daily range, he can start looking out for buy opportunities when price gets to the low of the range as well as looking for sell opportunities when price gets to the high of the range.
2. Helps in setting take profit and stop loss points: The forex trader will be able to set the best stop loss and take profit points to his trades if he has a knowledge of the daily range of the asset.
3. Helps is setting buy limit and sell limit orders: The trader would be able to set the best limit orders if he has a knowledge of the daily range and from there get the best entry levels.
HOW THE TRADER BENEFITS
Though the fundamental analysis traders might not care about the daily range of the asset they are trading, such knowledge should not be ignored by the technical traders, especially the day traders. Being aware of the probable space an asset price could cover in a day gives additional information to the forex trader. This information when combined with the other skills of the trader ensures better trading results.
USING THE DAILY RANGE WHEN TRADING
If i were to trade the gbp/usd currency pair with the knowledge that the asset could cover 110 pips easily in a day, especially when ranging, then i start looking out for either the low or high of the range whichever comes first. If price moves to the upside with 90 pips, i place my first entry, an instant sell order. I will then set two pendings, sell limits 20 pips apart. The idea is that in a range bound market, any additional move would not be more than 40 pips, hence my pendings wait here. This gives me an edge in that i get the best entry points and when the trade goes wrong my loss is insignificant. Trading support and resistance with the daily range sure is a very good approach to successful day trading.