Day Trading Strategies utilizing a Trading Range
Posted by: Richard Estrada // Category: Currency Futures
Day Traders can utilize a multitude of trade triggers to enter and exit a market. Once such DAY TRADING STRATEGY is the use of short-term trading ranges. A futures day trader could fade a rally or buy into a sell-off utilizing a trading range to help determine possible entry points or stop locations. Every market in my opinion has it’s own DNA or particulars in the way it trades. So, when utilizing this kind of day trading strategy in one market, the particulars won’t necessarily transfer over to another market. This day trading strategy is applicable to all futures markets, but the exact particulars should be assessed and modified when appropriate.
What does it mean to fade a rally or buy into a sell-off? When fading a rally a day trader takes a position in the market looking for the market to reverse or sell-off. When buying into a rally a day trader takes a position in the market looking for the market to reverse or go up.
What is a Trading Range? Every market has an average trading range, which typically translates into a percentage. The trading range can vary depending on how much data is calculated. A range with fewer data points will be more volatile, while a trading range with larger amounts of data will have a smoother average of trading ranges. These ranges can then be applied to the market in such a way that it gives a futures day trader a statistical probability or chance of a certain outcome.
Here is an example of how a futures day trader day trading futures might utilize this day trading strategy (trading range) to enter, manage and or exit a market. Let’s imagine a futures market that traded within a 1% range, nearly 75% of time based on the last two years of data. A futures day trader could utilize this trading range to enter a short or long position at .95% of the market’s range. In this example a futures day trader is looking to fade a rally or buy into a sell-off and is speculating that 75 percent of the time the market will not trade outside a 1% range. This same futures day trader could place a stop one tenth of a percent above a 1% range, again utilizing the trading range in this particular example as a way to help manage the position. If the market were to trade outside of the 1% range, a stop would be triggered and the position exited.
Once again, the above illustration is an example of how a futures day trader day trading futures might utilize this type of day trading strategy (trading range) in a particular market to implement intra-day trades. This particular day trading strategy could also be combined with other day trading strategies as a way to enter, manage and exit positions.
Remember, trading futures is not for the meek or garden-variety-investor, but for those individuals who are looking for aggressive alternatives. There is significant risk of financial loss in trading futures and you should carefully consider whether such an investment is right for you.