Trading within a range, I feel, is an aggressive set up style that uses the support of a floor and resistance of a ceiling to trigger trades inside what could be called a Rectangle or Sideways Narrow Channel. But not just any sideways congestion can be set up for what I call an “Exhaustion Fade”. The entry name quite literally explains what I am looking for: As prices approach an established ceiling or floor I am watching for a loss of momentum and a reversal. I am taking advantage of the exhaustion that I am expecting to see at support or resistance. When I say “established” I mean that prices could have exhausted (reversed) at the level before and preferably fairly recently. Recently would qualify for within the lookback or market memory for that time frame.
So there are two criteria, the floor and ceiling and a distribution market cycle. Distribution can be recognized for a “two or four o’clock” reading on the 34EMA Wave. I think you will find that “two to four” angles are more easily recognizable for what they are not than for what they are. In other words, if the Wave is not steep enough to be a “twelve to two” or “four to six” (trending) and is not flat enough to be a “three o’clock” (sideways accumulation) then it is distribution. Distribution is sometime a transitional cycle where prices are going from trending to non-trending. But if and when that transition process is able to complete, distribution is what you are left with.
Take a look at this morning’s 30-minute AUD/USD.
*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results
Notice that a single “hit” or touchpoint has been created at the 0.9303 high and 0.9245 low. These two points are even more powerful because they are very close to major psychological levels (0.9300 and 0.9250).
The bottom of the range at 0.9245 is being tested as prices are trading lower towards this near term support level. They key to the set up, in my opinion, is confirming the distribution cycle so let’s view this same 30-minute chart within the market memory of seven to fourteen days.
*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results
Notice that the 34EMA Wave reading is “bumpy” in that it’s sideways but not flat and certainly not steep enough to be registering a trending market. Again this is always an aggressive entry and this one would be a buy off the 0.9245 to 0.9250 area with major psychological level support. The upside target should be equally as aggressive: Don’t expect big bounces. Look for near term resistance near the 0.9275 to 0.9280 minor psychological level. The stop loss also will be ten to twelve pips below the support level which places it in the 0.9232 to 0.9235 area. Many traders mistakenly believe that a bounce off support will head towards the top of the range and this is incorrect and often leads to a small gain turning into a losing trade. Be sure to take notice where the resistance levels are within the range as prices bounce from support as these will be potential profit targets. The stop loss is purposely close to the entry because if the floor fails to hold prices, the buy is no longer valid.
An additional tool for confirmation of the reversal at the ceiling or floor can be a Stochastic indicator as it heads to the 20 and 80 levels.
*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results
*In volatile market or fast-moving market conditions, stop-loss orders can become market orders and may be filled at the prevailing price, which may differ greatly from the desired price
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