In a scenario where the USD/CAD pair has been trading in a sideways structure for an extended period of time and is showing a bullish rejection pattern at the lower range of the zone on a 4-hour chart, a trader might consider employing a "Range Trading Strategy" with a combination of "Price Action Confirmation." Here’s how this strategy could be applied:
Identify the Range: First, it’s crucial to confirm that the market is range-bound. This means that the price is bouncing between a well-defined support and resistance level. In this case, the USD/CAD has been sideways for about three months.
Look for Price Action Confirmation at Support: a bullish rejection pattern (such as a hammer, Inside bar, bullish engulfing) at the lower range of the zone, this serves as a price action confirmation that the price might bounce back from the support level.
Enter a Long Position at Support: Once you have price action confirmation, you could enter a long position near the support level, betting that the price will rise towards the resistance.
Set Stop Loss Below Support: It’s important to manage risk by setting a stop loss just below the support level. This means that if the price breaks below the range, the position will be automatically closed to prevent further losses.
Set Take Profit Near Resistance: Set a take-profit order near the resistance level of the range. The idea is to capitalize on a potential bounce from the support and exit the trade before the price reaches the resistance where it might reverse again.
Monitor the Trade and Be Prepared for a Range Breakout: It’s important to closely monitor the trade as sometimes a range-bound market can transition into a trending market. If the price breaks out of the range, be prepared to adjust the strategy accordingly.
You have the option to book profits at the top of the range and then wait for what was once resistance to now act as support, while also looking for a price rejection pattern for re-entry.
Alternatively, you can take profits on a portion of your position and move your stop loss to follow the price, keeping an eye out for any breakouts beyond the range. In case of a breakout and subsequent pullback, you can enter the trade again but with a smaller position size.
Identify the Range: First, it’s crucial to confirm that the market is range-bound. This means that the price is bouncing between a well-defined support and resistance level. In this case, the USD/CAD has been sideways for about three months.
Look for Price Action Confirmation at Support: a bullish rejection pattern (such as a hammer, Inside bar, bullish engulfing) at the lower range of the zone, this serves as a price action confirmation that the price might bounce back from the support level.
Enter a Long Position at Support: Once you have price action confirmation, you could enter a long position near the support level, betting that the price will rise towards the resistance.
Set Stop Loss Below Support: It’s important to manage risk by setting a stop loss just below the support level. This means that if the price breaks below the range, the position will be automatically closed to prevent further losses.
Set Take Profit Near Resistance: Set a take-profit order near the resistance level of the range. The idea is to capitalize on a potential bounce from the support and exit the trade before the price reaches the resistance where it might reverse again.
Monitor the Trade and Be Prepared for a Range Breakout: It’s important to closely monitor the trade as sometimes a range-bound market can transition into a trending market. If the price breaks out of the range, be prepared to adjust the strategy accordingly.
You have the option to book profits at the top of the range and then wait for what was once resistance to now act as support, while also looking for a price rejection pattern for re-entry.
Alternatively, you can take profits on a portion of your position and move your stop loss to follow the price, keeping an eye out for any breakouts beyond the range. In case of a breakout and subsequent pullback, you can enter the trade again but with a smaller position size.