Range Trading

What is Range Trading?

Range trading is a strategy used in sideways (non-trending) markets where prices fluctuate between support (price floor) and resistance (price ceiling). Traders profit by buying near support and selling near resistance, repeating the process until the range breaks.

How Range Trading Works

1. Identify the Range:
   • Look for horizontal price action with clear, tested support and resistance levels.
   • Use tools like Bollinger Bands (flat bands) or horizontal lines on charts.
2. Buy at Support: Enter long positions when price nears support with bullish reversal signs (e.g., hammer candlestick).
3. Sell at Resistance: Exit longs or short-sell when price approaches resistance with bearish signals (e.g., shooting star).
4. Repeat Until Breakout: Trade the range until price breaks decisively above/below with volume.

Example:

• Stock: XYZ trades between $30(support)and$35 (resistance) for weeks.
• Entry: Buy at $30.50,sellat$34.50.
• Stop-Loss: Place below $30(supportbreach)orabove$35 (resistance breakout).

Key Tools & Indicators

• Bollinger Bands: Flat bands indicate low volatility (range-bound markets).
• RSI (Relative Strength Index): Overbought (>70) at resistance, oversold (<30) at support.
• Horizontal Lines: Manually mark support/resistance levels.
• Volume: Confirm breakouts with rising volume.

Pros of Range Trading

• Predictable Setups: Clear buy/sell zones in stable markets.
• Lower Stress: No need to predict trend direction.
• Repeatable: Multiple trades within the same range.

Cons of Range Trading

• False Breakouts: Price may break support/resistance unexpectedly.
• Missed Trends: Profits are limited compared to trending markets.
• Requires Patience: Waiting for price to reach range boundaries.

Risk Management Tips

1. Use Tight Stops: Place stops just outside the range (e.g., 1–2% below support).
2. Avoid Overtrading: Stick to high-probability setups near key levels.
3. Confirm with Indicators: Use RSI or stochastic oscillators to validate entries.

Common Mistakes

• Ignoring Volume: Low-volume breakouts are often fake.
• Chasing Prices: Don’t enter mid-range—wait for support/resistance.
• Overlooking Timeframes: Ranges on higher timeframes (daily/weekly) are more reliable.

Range Trading vs. Breakout Trading

• Range Trading: Profits from price bouncing between support/resistance.
• Breakout Trading: Bets on price breaking out of the to start a trend.

Tools & Resources

• Charting Platforms: TradingView, MetaTrader (draw horizontal lines, Bollinger Bands).
• Scanners: Finviz (filter for low-volatility stocks).
• Books: Trading Price Action Ranges by Al Brooks.

Example Strategy: Bollinger Band Squeeze

1. Identify a Squeeze: Bollinger Bands narrow, signaling low volatility.
2. Wait for Breakout or Reversal:
   • If price breaks bands with volume, switch to trend following.
   • If price reverts to the middle band, trade the range.

FAQ

Q: Which markets are best for range trading?
A: Forex (e.g., EUR/CHF), ETFs, and stocks with stable fundamentals.

Q: How long do ranges typically last?
A: Ranges can persist for weeks or months until a catalyst triggers a breakout.

Q: Can I use options for range trading?
A: Yes! Sell iron condors or strangles to profit from low volatility.

Conclusion

Range trading is ideal for disciplined traders who thrive in stable, sideways markets. By mastering support/resistance zones, using confirmatory indicators, and managing risk, you can consistently profit while avoiding the noise of trends.