We have range market conditions, when:
- 3 Moving Averages with periods 20, 50 and 100 don't move in one direction. They are close to each other and intertwine
- is below level 20 or 25.
When we meet such conditions, we have range market. We must not trade based on reversal signals from Moving Averages. For range markets we look for reversal signals only from . and must confirm price reversal. We focus on price action near and it's better to have strong support or resistance levels which could stop price. We should look at higher time frame and get confirmation that market is in range also or just bulls or bears have no power for moving price against our potential trade. If we open trade based on range rules, but on higher time frame we have trend market conditions, we have good chances to close such trade with loss. Also note, if we trade in trend market conditions, we can have good Risk/Reward ration, in range our profit targets are close and for making profit we’ll need more profit trades. That’s why we need more confirmation for opening trades. So, let's look at the rules of trading strategy for range market conditions.
1. First of all we identify trading conditions - it's trend or range. If it's trend, look at another market. If it's range market conditions, we go to the next step
2. Wait for the moment, when candle will touch one of Bollinger Bands and close outside the bands for better reversal signal
3. When candle reverses and closes inside of Bollinger Bands, we'll need confirmation from indicators
4. RSI and MACD must confirm reversal, and for better signal RSI should reverse above 70 for sell trades and below 30 for buy trades
5. When we have reversal signal from Bollinger Band with RSI and MACD confirmation, we'll place pending order below the low of the signal candle for sell trade and above the high of the signals candle for buy trade.
Please note, the signal candle, it's a candle where we have everything for entry: price reversal, MACD and RSI confirmation.
6. Place stop order above the nearest high of price movement for sell trade and below the nearest low of price movement for buy trade
7. Profit targets are the opposite Bollinger Band or support and resistance levels
Look at the chart above and study 5 trades based on the trading strategy rules for range market conditions. You can search for the signals on minutes, hour and daily charts. If you have questions about trend signals, please write in comments. I will be glad to answer all your questions.
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Thank you for your detailed tradingviews. I am studying everything.
In your other view you talk about MACD being the most important indicator. Is MACD the important one in trending markets, while RSI being most important in ranging?
Or did you change your view on these indicators?