It is relatively easy to make money in a trending market. Sometimes it’s as simple as watching which direction price is moving and trading with the flow. If you have a forex trading system that’s only profitable in a trending market, the worst thing you can to experience is a ranging market. In general, a ranging market could possibly devour the profits from a system developed around a trending market.

Now I’m not saying you cannot trade profitably in a ranging market. I am however saying it is more difficult. I personally would rather just not bother with a ranging market if I can hold out for the more profitable trending market.

There are a variety of indicators to help determine if price is range-bound.

ADX

The Average Directional Index indicator was designed to measure the strength of a trend. As such, if price becomes range bound the ADX level will decline. When ADX measures at 20 or below it is safe to assume that price is ranging. As the level increases the trend is gaining strength once again.

Bollinger Bands

Bollinger Bands are an excellent tool in determining if a price is either ranging or breaking out in a trend. Bollinger Bands measure the extreme of volatility with a currency pair. When the bands are wide and moving apart the volatility of the pair is greater and it is common to see that the price is trending in one direction or another.

However, if the bands are constrained and tight, volatility is low and price tends to bounce up and down in a tight environment. This is a good indication that price is range bound.

Price Action

All right, this one doesn’t require an indicator, but it is valid on it’s own. Simply spotting support and resistance in a tight area can help determine if a price is trending or ranging.

The above picture is a great illustration showing how price action alone can help you determine what a trending or ranging market looks like. After the retracement, price failed to break past the high of the uptrend. From there price went range bound.

Again I want to mention that there is nothing wrong with trading in a ranging market. It is just a wiser choice to avoid it if your trading system is dependent on a trending system.

The FX Trading Network has recommended a trading system that specifically hunts for trends. The Profitable Trend Forex System has proven to be a winner month after month. It currently averages 150 pips each week and there is currently an 8-week free trial. Get on board and start taking advantage of those highly profitable trends.

Related posts:

1. Trading in a Range Market
2. How to Successfully use Moving Averages in Forex