Range Trading Guide

Markets do not always trend. Sometimes they move sideways in a range. Range trading is the strategy to profit in such markets.

What Is Range Trading?

In range trading, you buy at the bottom of a range and sell at the top. The trick is to determine whether the market is actually in a range.

Identifying a Range

1. Identify Support and Resistance

A range is bounded by support at the bottom and resistance at the top. The more often these levels are tested, the stronger the range.

2. Horizontal Lines

Draw horizontal lines along the lows (support) and highs (resistance). If price moves up and down between these lines, there is a range.

3. ADX Indicator

The ADX indicator measures trend strength. An ADX below 25 indicates a weak or absent trend, which is favorable for range trading.

Range Trading Strategies

1. Buy at Support, Sell at Resistance

When price touches support, open a long position. When price touches resistance, close your position and possibly open a short.

2. Using Oscillators

Use the RSI or Stochastic to determine entry moments. When the RSI drops below 30 at support, it is a buy signal. Above 70 at resistance, it is a sell signal.

3. Bollinger Bands

In a range, Bollinger Bands act as dynamic support and resistance. Buy at the lower band, sell at the upper band.

Risks of Range Trading

Breakout Risk

The biggest risk is that the range breaks. Always place a stop loss just outside the range.

False Signals

In a range, there can be false signals. Wait for confirmation before opening a trade.

Tips

• Range trading works best in low volatility markets
• Always use a stop loss
• Be cautious when approaching the edges of the range
• Follow news that could break the range

Conclusion

Range trading is a useful strategy for markets that do not trend. It requires a different mindset than trend following, but it can be very profitable in the right conditions.