AUD/USD: Proper Way to Trade the Range

By: Andrei Tratseuski

Looking at the Aussie, we currently find the pair ranging after a prolonged uptrend. A sway of risk appetite and risk aversion has pinned the pair between a range of 0.88 and 0.87. A probability of the pair making a trend after a break of either resistance or support is high. We are desired to derive the best levels of trade after either of the aforementioned levels are breached. For the mean time, the pair does represent a proper set-up for range trading strategy.

After mentioning that a range trading strategy should be implemented, let's take a look at the charts to derive appropriate strategy. We will implement RSI (Relative Strength Index) to help us out with the direction. First and foremost, a long or a short sentiment should be established either below or above 20-period SMA (the middle line of Bollinger Bands). So we have established the following scenario, whenever the pair is above 20 SMA go long, whenever it is only go short. Thereafter we will look at the candles and RSI to determine levels of entry and exit. So follow these rules of thumb. Look for reversal candlesticks (doji, hammer-regular and inverted, spinning tops/bottoms, and high waves). Also look for RSI to show negative or positive readings. Whenever the oscillator enter overbought zone (above 70) wait for it to exit the zone to take a short position, and whenever the oscillator enter oversold zone (below 30) and exits out of the zone a long position can be taken. Vertical lines on the chart represent a prudent way to trade a range trading scenario.