The AUDNZD daily chart has been trading sideways creating opportunities for range traders. A range is defined as a non-directional market trading in between support and resistance levels. This is true of the AUDNZD and the current range can be found by viewing the standing high at 1.3078 and the current low at 1.2661. With these points on the graph defined, traders can begin looking for areas to buy and sell as long as price remains within their bounds. For this we will once again turn to the RSI oscillator.
(Created using FXCM’s Marketscope 2.0 charts)
In a previous edition of chart of the day we discussed using RSI in ranging markets. This strategy can be replicated as seen on the above AUDNZD Daily graph.Traders will look for price to bounce off support and the RSI indicator to turn from oversold levels prior to placing new buy orders. Traders will want to keep their orders as close to support as possible. This way profits can be maximized and stops minimized if price continues to range. Lets look at how to find these levels.
Managing risk and finding profit targets in a range is also an important criterion to consider. One way to devise these levels is to measure the distance of the range and use a fixed rate to set stops and limits. Currently the range stands at approximately 400 pips on the AUDNZD daily chart below. If a stop is set at 25% of the range value, this means in this example a stop can be placed 100 pips under support. As well profit targets can be set at 75% of the range value targeting a profit of 300 pips creating a 1:3 risk/reward ratio. These levels are shown below, but it should also be noted they can be modified to meet different traders risk / reward criterion.
(Created using FXCM’s Marketscope 2.0 charts)
Using RSI with the chart mentioned above, my preference is to buy the AUDNZD on a return from oversold levels near 1.2700 or better. New orders can target range resistance at 1.3000 with stops placed outside of support as described above. Depending on where RSI creates a signal to buy, traders can then extrapolate a 1:3 or better Risk/Reward level.
Alternatives include price breaking out of the mentioned range.
---Written by Walker England, Trading Instructor
To contact Walker, email WEngland@FXCM.com . Follow me on Twitter at @WEnglandFX.
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