MACD Ranging Strategy

MACD Ranging Strategy

A lot of digital options strategies focus asset price trends, but the MACD Ranging strategy does not. This strategy is instead designed to be paired with ranging market conditions. Many traders find it tough to identify an entry point whenever prices are ranging, but then look back later and see several missed opportunities. When asset prices are flat, it can certainly pay to use a strategy that can help you enter the market at optimal times.

To put this strategy to use, you’ll want to use an MACD indicator that can mark a histogram on your chosen analysis chart. Two additional levels are going to be drawn, one at 0.0005 and the other at -0.0005. These configurations could be changed if fewer decimals are desired, so make adjustments as needed. As soon as your chosen asset has a price that is trading between these lines, it can be viewed as ranging.

After you’ve made this determination, you’ll start looking for prime entry points. You could also plot the levels and watch for Call positions whenever the asset price hits support, or Put positions whenever the price hits resistance. A third alternative would be to watch for the histogram to leave the ranging area, and then trade the breakout. You’d purchase a Put whenever the histogram exceeds -0.0005, or Call if 0.0005 is exceeded. This should be followed by a break in the support and resistance levels.

The MACD histogram does not enter the target zone frequently, but all you really need is for the histogram to surpass the above mentioned levels. Sketching lines on a histogram isn’t enough though. You need to be familiar with asset characteristics and their average price levels. The histogram will shift outside of the levels several times within each trading period, but when it stays in zone for a longer period of time, you can start looking for a ranging market. When the histogram is remaining near zero, trade volume is low and the asset price will not move much. This knowledge alone can help you know when to trade and when to walk away.

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