By: Terry Allen

Forex expert consensus will always advise that you should try to trade with the trend in order to maximize your profits. This is obviously good advice, but sometimes Forex does not readily comply and range trades, instead, for considerable time periods.

Under these conditions, can you still make reasonable profits? This article is intended to introduce you to some concepts that will help you do just that. Oscillating or whipsaw markets can often present the same initial signs of the creation of a new trend. However, instead of proceeding in its new chosen direction, price can often retract towards its original starting level and even further.

If you had already tried to trade the new trend, then you could well find yourself being stopped out under such circumstances. In fact, this sequence of events illustrates a common weakness in many traders, especially novices, in that they try to second guess new Forex developments.

This is never a very good idea over the long haul because Forex can be totally unpredictable, but is always right. If you continually find yourself in such positions, here are some guidelines that you may find of help:

If price seems to have adopted a fluctuating pattern over recent times, then you need to identify whether it is trading within a range. If so, then you should be able to pinpoint an upper level or ceiling and a lower level or floor.

You can then try to trade the range by detecting when price is about to bounce against either the ceiling or floor. In the former case, you should attempt to open a new sell position whilst in the latter one a long trade.

However, you must always be on your guard in case price breaks out of its range and proceeds to generate a new trend. You can protect yourself against such eventualities by placing a stop on the over side of the resistance (short trade) or support (long trade).

In the worst case, if price does breakout, then you will only suffer a small loss. You would then be able to reverse your trading direction by trading with the new trend. When you are detecting such positions, you are well-advised to base your trading charts on the longer timeframes from the daily upwards.

This is because the statistics associated with higher timeframes are significantly more accurate than those associated with lower ones. Consequently, any technical indicator that you may be using can minimize the noise effects better that often disguise significant price formations such as head and shoulders, Doji and morning starts, etc.

When you are trading a range in a volatile market, then you could well benefit from using correlation. For instance, you will need to use currency pairs that exhibit high correlation such as the EUR/USD and the USD/YEN. Consequently, you will discover that when the former is rising, then the latter is falling and vice versa. Basically, you can use correlation has a dynamic stop after some practice and experience.