Approximate Trading Ranges

In the search for the next potential support or resistance level, we should understand the FX-market is generally considered a ‘range bound’ market as currencies tend to oscillate between relative high and low prices over a given period of time. It is quite common for a common stock to double in price, or drop by 50% in a short amount of time. On the other hand, the FX-market tends to remain within predetermined trading ranges. So when a specific currency pair experiences a significant move to one side or the other, our chances of a retracement become that much more likely. With any trade, we should strive to find at least 2-independent sources of confirmation before placing the order. We can see based on the (daily) chart below, the USDCAD tends to remain inside a 400-pip range, first between 1.1400 & and 1.1800, and then dropping to a lower level; 1.1000 & 1.1400. Notice how the most opportune time to place a trade was not only when the market traded close to one of these large round figures, but also when the market touched either the lower or upper Bollinger Band. In addition, note how our former support (1.1400) eventually became our new resistance level. By that logic, if the market is able to break above 1.1400, 1.1800 may represent our new resistance and 1.1400, support. On the other hand, if the market breaks below 1.1000, this current support may one day represent our new resistance level.