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Chapter 11: Introduction to FX trading s... > Trading the breakout from a tight ra...

Trading the breakout from a tight range — straddling the market

If your online margin FX platform allows you to use ‘stop’ orders to enter into new positions, you may find opportunities in which you wish to attempt straddling the market, with a stop-entry order on either side of a range. The basic idea is that when the market breaks out of its trading range, it will trigger either your stop-buy order (on a break higher) or your stop-sell order (on a break lower).

The first step in using this strategy is to identify a trading range on the chart. Take a look at figure 11.3, a 60-minute chart of USD/SGD, overleaf. You can see that trade has been caught in a band of 1.1997 to 1.2048 for several days. While the preceding trend was bearish, bounces from support that has emerged in the 1.2000/1.1997 region may give bears cause for concern. Rather than staking everything on a one-way directional play, you can straddle the market with stop-entry orders that will open a new position for you when the market breaks out of the range.


  

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