What Is a Trading Range?

A trading range occurs when a security trades between consistent high and low prices for a period of time. The top of a security’s trading range often provides price resistance, while the bottom of the trading range typically offers price support.

Understanding Trading Ranges

When a stock breaks through or falls below its trading range, it usually means there is momentum (positive or negative) building. A breakout occurs when the price of a security breaks above a trading range, while a breakdown happens when the price falls below a trading range. Typically, breakouts and breakdowns are more reliable when they are accompanied by a large volume, which suggests widespre꧋ad participation by traders and investors.

Many investors look at the duration of a trading range. Large trending moves often follow extended range-bound periods. 澳洲幸运5开奖号码历史查询:Day traders frequently use the trading range of the first half-hour of the trading session as a reference point for their intraday strategies. For example, a trader might buy a stock if it breaks above its ope﷽ning trading range.

Those interested in learning more abou🌠t the trading ranges and other financial topics may want to consider enrolling in one of the best technical analysis courses currently avai♏lable.

Ranges and Volatility

Since price 澳洲幸运5开奖号码历史查询:volatility is seen as equivalent to risk, a security’s trading range ꦦis a good indicator of relative riskiness.

A conservative investor prefers securities with smaller price fluctuations compared to securities that are susceptible to significant gyrations. Such an investor may prefer to invest in more stable sectors such as utilities, healthcare, and telecommunications, rather than in more cyclical (or high-beta) sectors such as financials, technology, and commodities. Generally speaking, high-be♎ta sectors may have wider ranges than low-beta sectors.

Trading Range Strategies

澳洲幸运5开奖号码历史查询:Range-bound trading is a trading strategy that seeks to identify and capitalize on stocks trading in price channels. After finding major support and resistance levels and connecting them with horizontal 澳洲幸运5开奖号码历史查询:trendlines, a trader can buy a security at the lower trendline support (bottom of the channel) and sell it at the upper trendline resistance (top of the channel).

Support and Resistance

If a security is in a well-established trading range, traders can buy when the price approaches its support and sell when it reaches the level of resistance. 澳洲幸运5开奖号码历史查询:Technical indicators, such as the relative strength index (RSI), 澳洲幸运5开奖号码历史查询:stochastic oscillator, and the commodity channel index (CCI), can be used to confirm overbought and oversold conditions when price oscillatesඣ within a trading range.

For example, a trader could enter a 澳洲幸运5开奖号码历史查询:long position when the price of a stock is trading at support, and the RSI gives an oversold reading below 30. Alternatively, the trader may decide to open a 澳洲幸运5开奖号码历史查询:short position when the RSI m𝕴oves into overbought territory above 70. A stop-loss order sꦑhould be placed just outside of the trading range to minimize risk.

Breakouts and Breakdowns

Traders can enter in the direction of a breakout or breakdown from a trading range. To confirm the move is valid, traders should use other indicators, such as volume and 澳洲幸运5开奖号码历史查询:price action.

For instance, there should be a significant increase in volume on the initial breakout or breakdown as well as several closes outside the trading range. Instead of chasing the price, traders may want to wait for a 澳洲幸运5开奖号码历史查询:retracement before entering a trade. For example, a buy limit order could be placed just above the top of the trading range, which now acts as a support level. A 澳洲幸运5开奖号码历史查询:stop-loss order could sit at the op🀅posite side of the trading range to protect against a failed ཧbreakout.

Example of a Trading Range

In this chart, a trader might have noticed that the stock was starting to form a price channel in late November and🅷 early December.

After the initial peaks were formed, the trader may have started placing long and short trades based on these trendlines, wi🦩th a total of three short trades and two long trades along the resistance and support levels, respectively. The stock does not yet indicate a breakout from either trendline, which would mark an end to the range-bound trading strategy.