📚 Learn More 💰 Earn More with us: Range-Bound Market

28 janv. 2021

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What is a Range-Bound Market?

A range-bound market is one in which price bounces between a specific high price and a low price.

The high price acts as a major resistance level in which price can’t seem to breakthrough.
Likewise, the low price acts as a major support level in which price can’t seem to break as well.

The market movement could be classified as horizontal, ranging, or sideways.

A range-bound market is the opposite of a trending market.

In a range-bound market, there is no clear direction.


How to trade Range-Bound Market?

1- Trading Major Support and Resistance:
Traders capitalize on range-bound trading by repeatedly buying at the major support level and selling at the major resistance level until the security breaks out from a price channel.
The idea is that the price is more likely to rebound from these levels than break through them, which puts the risk-to-reward ratio in their favor, although it's important to always watch for a potential breakout.

Technical indicators, such as the relative strength index (RSI), can be used to confirm overbought and oversold conditions when price oscillates within a trading range.

For example, a trader could enter a long position when the price is trading at major support and the RSI gives an oversold reading below 30. Alternatively, the trader may decide to open a short position when the RSI moves into overbought territory above 70.

Most traders place stop-loss points just below the major support level and above the major resistance level to mitigate the risk of heavy losses from a high volume breakout.


2- Trading Breakouts:
Traders can enter in the direction of a breakout from a trading range. To confirm the move is valid, traders should use other indicators, such as volume and price action.

For instance, there should be a significant increase in volume on the initial breakout, as well as several closes outside the trading range. Instead of chasing the price, traders may want to wait for a 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 stop-loss order could sit at the opposite side of the trading range to protect against a failed breakout.

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