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Which range target should I use?

A reader asked me the following:

I am a Forex Trader at the beginning and my question is about range trading. I have attached a Screenshot of USD/CAD 4H chart and make some notes about targets and profitability. I want you know what do you think about target 1,2,3 pro and cons.

Here’s that screenshot.

Range Trading
Click for full-sized version

For me the selection of target in a case like this depends on the broader market pattern. If the general trend is positive, then going with a very conservative objective (Target 1) risks leaving considerable profits on the table. I would personally go with something higher, maybe all the way up to Target 3 in expectation that if the market is generally bullish it should reach the upper bounds of the range. If not, then you have a sign of potential weakness.

If, however, the market is in a generally negative condition then I would definitely use the closer target. In that case I would then watch to see how price moved in the range change to gauge whether it was continuing to show weakness (in which case I’d be less inclined to make long trades) or whether it started to show strength.

 

By John

Author of The Essentials of Trading

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