What Is Range Trading?

• Range trading is a trading strategy based on identifying overbought (resistance) and oversold (support) areas on the chart.
• This method is based on identifying a certain range in which the market is moving.

The first and most important step in range trading is to identify the interval in which to trade:

• Trend channels
• Price patterns such as triangles or rectangles
• Previous highs and lows
• Oscillators such as Stochastics or MACD

Once identified, traders will establish positions based on support and resistance areas, where buy positions are executed at support levels and sell positions at resistance levels.

For example, if an interval has been identified forming a trend channel, a trader will look to go long at the identified support level and short at the identified resistance level.

As can be seen from the chart, the market finally breaks the interval. At this time the trader will seek to identify a new interval in which to operate.

Note that to increase the chance of successful trading, a trader can choose to trade only in the direction of the prevailing trend and apply the risk management rules. 

In the second example, the interval is based on the Stochastic Oscillator, which oscillates between the levels of 0 and 100. In this case, the trader will look for bearish positions when they can break the level of 80 from above.

In accordance with the first example, the rules for identifying trends together with risk management should increase the probability of success in your operation.

What is important is that some range strategies can help you identify potential targets, but only some will give you buy and sell signals without a clear signal of where the market will potentially move.