When a security stops following a trend and instead oscillates between two prices, it becomes range-bound. Unlike trend following, range trading sees traders going both long and short (at different times) depending on the position of the price within the range. Usually in trend following traders will go with the overall direction of the trend, and buy dips in a rising trend and sell rallies in a falling one.

13, 21 EMA Strategy for Intraday Trading [2024 Guide]

Most traders place stop-loss points just above the upper and lower trendlines to mitigate the risk of heavy losses from a high volume breakout or breakdown. For example, if a security has a lower support trendline at $10.00 and an upper resistance trendline at $15.00, the trader may purchase the stock at $11.00, just after a rebound, with a stop-loss of $9.00. As the price bounces back and forth, it establishes identical, or nearly identical, highs and lows, creating an upper resistance level and a lower support level. While the limited upside potential may be frustrating for someone looking to ride a trend, the relative predictability bitcoin technical trading strategies of these highs and lows can mean easy money, albeit in smaller quantities. Many traders spend a good portion of time looking for and identifying trends in stock charts, hoping to ride the next wave to profit.

Example of a Trading Range

In this exponential moving average chart, a trader may have noticed that the stock was starting to form a price channel in late October and early November. After the initial peaks were formed, the trader may have started placing long and short trades based on these trendlines, with a total of four short trades and two long trades. The stock’s breakout from upper trendline resistance marks an end to the range-bound trading.

Range Trading Using Oscillators and Indicators

It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. Usually, a price must recover from a support area at least twice and also move back from a resistance zone at least twice.

Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning. Stay on top of upcoming market-moving events with our customisable economic calendar. Hundreds of markets all in one place – Apple, Bitcoin, Gold, Watches, NFTs, Sneakers and so much more. Sell or go short when the price touches the upper Bollinger Band and starts to revert.

At the same time, the Moving Average Convergence Divergence (MACD) can help you identify changes in momentum. As you can see, the British Pound and the US dollar have been trading in a narrow range between 1.35 and 1.42 for quite a long period. But remember, a ranging market can also occur in shorter time frames; hence, 1-Hour, 30-Min, 15-Min, and even 5 or 1-Min.

Obviously, an asset’s price cannot stay in a range forever, which means it will break above or below the resistance or support level at some point. So, if you want a more aggressive approach to trading a ranging market, you can wait for the breakout. In a triangular-ranging market, the price moves between two converging levels of support and resistance. This creates a triangular pattern on the chart, with the price bouncing back and forth between the two levels.

For others, a ranging market is gold – a perfect trading mode with a low-risk and simple way to trade the markets. Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Since the chief risk inherent in trading range-bound stocks is being on the wrong side of the breakout, it is important to pay close attention to any clues that might hint at when it will occur.

They’re generally riskier but they can be enticing for investors who are willing to gamble a little to achieve better returns. Conversely, a breakout above a price that has marked the top of the range on numerous occasions is considered as a breach of resistance and provides a bullish signal. By knowing what a trending environment and a range-bound environment are and what they look like, you’ll be able to employ a specific strategy for each. A range-bound market is one Safe stocks to buy for beginners in which price bounces between a specific high price and a low price. Explore our Trade Together program for live streams, expert coaching and much more.

Trading Range: Definition, When It Occurs, How To Use and Example

Otherwise, the price may simply be establishing a higher low and higher high in an uptrend or a lower high and lower low in a downtrend. Range trading necessitates strict adherence to established rules, challenging traders to overcome instinctual responses. For example, a trader who sets a buy order at $50 and a sell target at $55 must maintain this strategy, regardless of whether the market value unexpectedly climbs to $56. The section ahead will detail three range trading strategies, differentiated by their respective settings, indicators, and market approach. The same market segment will serve as the basis for demonstrating each strategy’s application. The comparison aims to delineate the distinctive operational aspects of these strategies and their potential adjustment for effective range trading.

1. It allows you to see the depth of the market and gauge the buying and selling pressure at different price levels.
2. Explore our Trade Together program for live streams, expert coaching and much more.
3. Currency pairs like EUR/CHF and USD/JPY have historically exhibited range-bound characteristics due to economic policies that tend to stabilize these currencies.
4. A ranging market is a market that moves within a specific range without showing any clear direction or trend.
5. Generally, range trading environments will contain somewhat narrow bands compared to wide bands and form horizontally.
6. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors.

IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.

Another valuable tool for identifying a ranging market is to add Fibonacci retracement levels to your chart. These levels are based on the magical Fibonacci sequence and can help you identify critical support and resistance levels. Then, you can use the retracement levels to determine potential areas of price consolidation. The most basic technique to identify a ranging market is drawing the support and resistance levels.