5. Check the daily chart to see the direction of the day trend. If it is an up-trend, then always buy whenever the price is near the lower band of the range. If it is a downtrend then always sell whenever the price is near the upper band of the range. The rationale behind this is when the day trend is an up-trend, the price tends to make an “upward” breakout from the trading range, and when the day trend is a down-trend, the price tends to make a “downward” breakout from the trading range. For this example, the daily chart below shows that the day trend is an up-trend.
6. Since in a ranging market, Stochastic is used to indicate reversals, we shall buy when the Stochastic indicates an upward reversal or sell whenever it indicates a downward reversal. For this example, we shall ONLY open a buy position (see Blue Up Arrows) when the Stochastic indicates an upward reversal (see Green Up Arrows) since the day trend is an up-trend as seen in the daily chart above, and close the trade position (see Red Down Arrows) when the Stochastic indicates a downward reversal (see Green Down Arrows). 7. For this example, the price candle eventually did breakout from the trading range with an up-trend move according to the direction of the day trend. Please note that this is usually but not always the case. However, it is highly recommended that in range trading, do not trade against the trend as indicated in the daily chart.
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