Utilizing a Range of Daily Average in Forex Trading
One forex strategy commonly used by forex traders is the Daily Forex Range Strategy which utilizes the daily average range . Many argue that if prices have moved and reached their daily range, then it’s time to open a position. This means that if prices move up and have reached the daily average range then it’s time to sell, and vice versa.
Have you ever heard of a theory like that? Or have you used it?
Unfortunately, it turns out that in reality it’s not that easy. If you have ever used it, of course you will also find that it is not that simple.
Well, this time I want to share tips on how to use the range of daily average information for the purpose of setting profit targets.
Can it be used to open a position?
Some opinions state: unsafe. This is because we can only get information – at least estimates – how much price volatility that day. We cannot know how many pips actually the price will move (up or down).Price movements are often very much influenced by fundamental factors.
That is, even though we know that the range of daily averages is – for example – 1000 pips, but if later the country’s central bank announces that it will cut interest rates, the market may move more than 1000 pips.
This is one reason why we should be aware that there is an inconsistency in the daily range . Anything can happen to the market at any time.
Well , does this mean that the daily range is information that is useless in forex trading ?
Not really. What I mean is that you should avoid using that information to open a position. Even if you want to do that, you should really consider carefully. Make sure you have a strategy that can really anticipate changes in direction (and distance!) Price movements.
Use For Profit Targets
In this way, you will still be able to maintain your position and re-analyze the market reaction when the price reaches its daily average range . If price movements continue, you can maintain your position. Conversely, if you see signs that the market is getting saturated, then you can estimate that the momentum of price movements has started to decline and that is probably the right time to close the position.
This strategy will make you able to “secure” the profits that have been obtained from the transactions that you have done. But remember that this method must be part of your overall trading strategy.
Likewise if it turns out your trading conditions experience loss . If the price has moved beyond its daily average range , there is a possibility that the market will actually turn in the opposite direction to the position you take.
Range of Major Pairs Daily Average
So, how much is the daily average range in forex ?
In closing, here I present the average daily range data for the six major currency pairs in the last year starting February 2016. Hopefully it helps.
|Pair||Daily Average Range|