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Range Bound Trading System
On any time frame two moving averages: 34 EMA and 5 EMA
After both moving averages have been trading apart for a while it means that the market is trending, start watching for the first candlestick to touch both moving averages (body & shadows, eveything counts). Here is our first candidate on the screen shot below:
This is the first early sign that a sideways pattern might be forming. I used words might be because we don´t know what´s in for us ahead. But lets go step by step. Below is what you will actually seeing in real time:
Our next step is to look behind that candlestick and identify the closest swing hi and low. Both those swings should be outside the reference candle body length, including shadows. Reference candle is the one I´ve circled in blue.
Once we´ve found both swings draw horizontal lines, as show below:
Thats your anticipated range area ahead. As long as price stays inside that area, you can treat it as a range bound move.
Let´s now have a look what were the actual results:
Price holds inside the predicted range! Pretty good forecast isn´t it?
But thats not all. We can go further and each time a new candle touches both Moving Averages, we are free to reset our range boundaries to new highs and lows using the same old rules. Range boundaries can go up and down during each new re--set, it is fine.
When re-setting, keep the boundaries of the very first range for the reference, when price finally breaks that level-that´s a significant achievement and a new chapter for a new trend.
Written by Edward Revy
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