Forex traders are often faced with just one dilemma: whether to trade range or trend? Depending on the trader’s assessment of the price of a foreign currency pair, he can increase his chances of trading success. Each of trend or range trending has its own price properties which require different techniques and mindset. It is very fortunate that the forex market can have both range and trend traders.
A trend is the simplest indicator of the direction of the price of a foreign currency pair. It can be an upward direction or a downward direction. The purpose of trend trading is to be able to recognize a trend and make forex positions before everyone else. For a forex trader to fully profit from a trend, he must be able to hold his positions until he realizes that there’s going to be a trend reversal. With trend trading, it is an all-or-nothing decision which means that he takes a forex position and when realizes that it isn’t worth holding on anymore, he quickly withdraws his position. A trend trader usually makes forex positions with tight stops. In most cases, he usually decides on various positions for him to make a lot of profits.
On the other hand, range traders don’t decide based on price directions. They are of the belief that whatever direction the price of the foreign currency pair takes, it will always go back to its original price. For range trading to be successful, a trader can take advantage of mini lots. Using leverage is also not advised with range trending.