Ranging and trending describe two distinct types of pattern development over time in Forex investing. Range patterns occur when a currency pair trades horizontally on trading charts within a relatively narrow range from high to low. Trending occurs when currency pairs move in a noticeable upward or downward trend on technical charts.
Trading Basics
Trading in Forex has increased significantly in the 21st century due to growth in online trading platforms. More than $4 trillion in currency value exchanges hands daily, according to the website Baby Pips, making Forex the highest volume and most liquid investment market in the world. Trading occurs through currency pairs, in which speculators buy (long) or sell (short) one currency relative to another. For example, a buy of EUR/USD, which represents one unit of euro expressed in U.S. dollars, indicates a belief that the euro will increase in value relative to the dollar. A sell indicates a counter belief that the euro's value will decrease.
Range Trading
Range trading takes place when currency pairs move in a relatively flat pattern over short-term or long-term periods. These patterns are identified on technical charts by narrow ranges between top and bottom price points and flatter, horizontal line charts. Forex is a unique market in that traders can make money even when currency pairs do not move significantly in one direction or another, notes the Online Forex Trading website. Range traders try to buy at the bottom of the range and sell at the top. They sacrifice greater profit potential offered by trend trading for less volatility and a more conservative way to collect profit over time.
Trend Trading
Trend trading is simply buying or selling a currency pair to profit on short-term or long-term directional trends. If you believe the EUR/USD is trending upward, meaning the euro's value is increasing, you would buy the pair and try to follow the trend to profit. You would sell if you believe the reverse, a downward trending euro, is developing. Trending trading is usually more volatile as traders have identified directional movement and many traders are attempting to profit on the trend direction. You have greater risk for gains, but also more risk of loss because of the volatility, and potential for making a bad trade.
Developing a Strategy
The key for most traders is to formulate specific strategies before engaging in trading. Sticking with a specific strategy and maintaining discipline are important. You must select good entrance points in currency investing and have predetermined profit exits, and predetermined stop-loss orders to minimize losses on a bad trade. More conservative investors may prefer range trading to more easily keep up with developments in their investments. When trend trading, tight stop-loss orders which restrict your potential for loss are especially important as a safety net against a wrong pick on the trend.
Source - eHow
