What are Forex Trading Ranges ?

What are Forex Trading Ranges ?

One way of looking at a range is as the market's capacity to exhibit this behavior. So what are the market conditions conducive to value ranging within an upper and lower bound ? It can perhaps be said that ranges are really an evolution of market conditions. As noted in the article about trends, they can literally follow a trend, that is they reflect the capacity of the market to deliver directional structured moves, but not to continue in this direction, rather to flip to the opposite direction, until it reaches a base or top. A range can be seen as reflecting, for a Forex pair, that firstly one side of the pair is relatively gaining, then the other side.

So there are a number of possibilities, including that the weaker side strengthens as the stronger side reaches the limits of its strength, thus potentially flipping it over (driven perhaps by traders). This dynamic is going on in a trend as well, in retracements and volatility, it is just that one side overall manages to overcome this for a while.

But it can be seen why a range may develop after a trend, as the capacity to move in a structured way is evident, yet there is not the set of relative conditions to enable movement to occur out of bounds, as the natural tendency of a pair to turn in the opposite way when it cannot move forwards, assuming there is some capacity to move, comes into action. So the structure expresses itself in these flips within upper and lower limits.

So it's two things: the capacity of a Forex pair to reverse (contingent on it having a relatively larger set of relative valuations which allows this to happen, compared with one direction) and the capacity to hold off on this within bounds. Those bounds can well be support and resistance, perhaps established during the trend. So what is a clue that a trend may be forming ? A base of volatility somewhere, and something that may structure the market. In Forex this can be strong moves in the US Equity market (at least for EUR/USD or USD/JPY).

It could be said that the clarity with which Forex shows patterns is a reflection of the fact it consists of two things: one pair against another. Thus there are plenty of ways for pairs to trace out moves based on changes in relative valuation, changing in ways which are not volatile (but ignited by volatility). Other markets can be more directional or not: that is they may have a strong trends and then fall, with retracements, as the market tries to re-find the direction it had. For a Forex pair, there is not really a preferred direction: there are many different effects of strength and weakness. This is also true of other markets, but in a more one dimensional way, allowing for trends to develop and end. For Forex the preferred direction is inherently flippable, down to its fundamentals and expressed in chart patterns.

So what about cryptos ? What they do and can do it perhaps hard to understand, so a tendency to have strongly directional moves is there, allied with periods where there is no particular direction, but because there is no obvious basis for a strongly directional move.

A problem with a range is that it can at any time become a directional move. However given a recent past of a trend does this make it more or less likely that this will happen. In fact the range itself can be seen as a reduction of probability that this can happen, in conditions still conducive to a trend. So reductions in volatility may be seem rather than a new directional move. However on a larger time frame a range could be part of a pattern in the evolution of a trend.

To answer the question, the market conditions are support and resistance (perhaps recently established or reinforced and not based on value levels, but rather market structure), and a stability allowing one pair to change strength relatively to another and then for the opposite to occur when it hits the bound, upper or lower. If any of these conditions fail, then a move away from the bounds is possible or a calmer move without sufficient direction one way or another. The support/resistance can be established by a trend which also provides structure and within it volatility. Behind all this can be structure sent into the market to create the relatively unusual situation of direction, perhaps from other markets.

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