Zone Range Forex Day Trading Strategy

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Zone Range Forex Day Trading Strategy

The market trends for about 20% of the time and ranges for about 80% of the time. Most traders choose to trade trend following strategies. This is very understandable because trend following strategies are some of the easiest types of trading strategies. Personally, I find more success trading during trending market conditions and trading trend continuation trade setups.

However, despite the ease of trading trend following strategies, it does have a glaring setback. It is that the market trends for only 20% of the time. This means that most of the time trend following traders are just sitting idly on their desks waiting for the market to trend. Sometimes the market would trend while the trader is not looking at a currency pair or when he is observing a different chart. This occurs too often for trend following traders because of the fact that the market ranges more often than it would trend. Trading trend following strategies requires a lot of discipline. Traders should control the urge not to trade when the market is ranging, which occurs more often than a trending market.

Range trading on the other hand opens a whole lot of opportunities. Although trend following strategies tend to be easier, range trading strategies opens up a whole lot of new opportunities for traders because of the fact that the market ranges more often than it would trend.

Zone Range Forex Day Trading Strategy is a range trading strategy that allows traders to trade during bounces from a support or resistance level. It uses an indicator to help traders identify the support or resistance levels automatically. It also uses a couple of other indicators to confirm the bounce based on a short-term momentum reversal.

Breakout Zones

Breakout Zones is an indicator which helps traders identify the current day’s range.

It plots support and resistance zones based on the highest high and lowest low of the beginning of a trading day. It then extends the support and resistance lines to the right end of the chart until a preset time.

The settings on the indicator allow traders to change the time to be considered as the beginning of the day. This allows traders to change the basis of the support and resistance line according to the trading session they would want to base it on. For example, traders can set the high and low of the Asian session as the basis of the range. They then could wait for breakouts from the said range. Another example would be to use the London session as the basis for the range and wait for price to reverse on these levels during the US session.

Stochastic Oscillator

The Stochastic Oscillator is a momentum indicator which indicates the direction of the short-term trend or momentum by using oscillators.

This indicator attempts to predict short-term momentum reversals based on the historical price movements. It plots two oscillator lines with one being faster than the other. These two lines oscillate within the range of 0 to 100.

Trend or momentum reversals are indicated whenever the two lines crossover. If the faster line crosses above the slower line, the market is said to be in a bullish momentum reversal. If the faster line is crossing below the slower line, then the market is said to be in a bearish momentum reversal.

The indicator also has markers at level 20 and 80. Price is said to be oversold whenever the lines are below 20 and overbought when the lines are above 80. Crossovers occurring on these areas tend to have a higher reliability since these crossovers are cause by overbought or oversold conditions.

Arrow Signal

Arrow Signal is a short-term trend reversal signal indicator which is based on swing highs and swing lows.

This indicator automatically identifies swing highs and swing lows based on fractals. As soon as it identifies a swing high or swing low, it plots an arrow pointing the direction of the short-term trend reversal.

Traders can use this signal as an early indication of a probable short-term trend reversal.

Trading Strategy

This trading strategy is a range trading strategy that trades on reversals from the support or resistance line plotted by the Breakout Zones indicator.

We will be using confluences of the Stochastic Oscillator and the Arrow Signal indicator to confirm a bounce from the support or resistance line.

On the Stochastic Oscillator, reversal signals are considered valid only when the Stochastic Oscillator lines crossover while oversold or overbought.

On the Arrow Signal indicator, reversal signals are generated simply based on the arrows being plotted that are in confluence with the Stochastic Oscillator signals.

Indicators:

  • Arrow_Signal
  • Breakout-zones
  • Stochastic Oscillator
    • %K Period: 12
    • %D Period: 10
    • Slowing: 15

Preferred Time Frames: 5-minute and 15-minute charts only

Currency Pairs: FX majors, minors and crosses

Buy Trade Setup

Entry

  • The Stochastic Oscillator lines should be below 20.
  • Price should bounce off the support level of the Breakout Zones indicator.
  • The Arrow Signal indicator should plot an arrow pointing up.
  • The faster Stochastic Oscillator line should cross above the slower line.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss on the support level below the entry candle.

Exit

  • Set the take profit target below the resistance level of the Breakout Zones indicator.

Zone Range Forex Day Trading Strategy

Zone Range Forex Day Trading Strategy 2

Sell Trade Setup

Entry

  • The Stochastic Oscillator lines should be above 80.
  • Price should bounce off the resistance level of the Breakout Zones indicator.
  • The Arrow Signal indicator should plot an arrow pointing down.
  • The faster Stochastic Oscillator line should cross below the slower line.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss on the resistance level above the entry candle.

Exit

  • Set the take profit target above the support level of the Breakout Zones indicator.

Zone Range Forex Day Trading Strategy 3

Zone Range Forex Day Trading Strategy 4

Conclusion

Trading range trade setups usually do not have as high a win rate as trend following strategies. However, it occurs more often giving traders more opportunity to grow their profits. If traded with the right indicator confirmation, range trade setups can have an improved win rate.

Because this strategy trades on bounces from support and resistance levels while in confluence with an oversold or overbought reversal, these trade setups tend to have a higher probability compared to the usual anticipation of reversals coming from a range level.

Traders can systematically trade this strategy on confirmed ranging market conditions with a higher degree of confidence.

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