The ability to make a good profit with very little risk, in addition to easily identifying the normal high and low movement has made range trading become known as the best strategy for new traders to approach the market. However, to enhance your trading success, it is of utmost importance that you are versed with the basics on how to range trade, especially if you are just getting started.
Explaining Range Trade
Range trading is a simple, non-directional trending strategy which traders use in order to profit from the market. This market is easily identified by the levels of high buying pressure, known as support, and high selling pressure, known as resistance. Here, the trader will buy as the price moves to a lower support level, and sell as the price moves to a higher resistance level.
How to Range Trade
The trading opportunity, as you can see, rests between the support and resistance levels in the range. This doesn’t necessarily mean that it has to be high in order for you to profit, or even enter into trade. In fact, this strategy allows you to take advantage of the lower volatility horizontal movement in the market. Once you have established the high and the low in a range, you trade reversals at these points. When the price moves to resistance, you wait for opportunities to go short, and when the price moves to support, you wait for opportunities to go long. Now that you know how to range trade, let’s have a look at setting up your first range trade.
Setting Up Your First Range Trade
1. Choosing a Great Range Trading Stock
Before entering your first trade, make sure you look for stocks whose price action is sideways and that the percentage between the swing move high and the swing move low is high enough for you to profit off of with how ever much money you are putting at risk in this trade.
2. Support and Resistance
Determine the support and resistance barrier levels by taking a look into the recent trading history, the highs and lows, Fibonacci levels, pivot points, and Bollinger Bands.
3. Setting Limits
In extended positions, set your limits near the top of resistance and your stops below the swing low, and in short positions, set your limits near the bottom of resistance and your stops above the swing high.
Now that you know how to range trade, you will find it much easier to identify and profit upon the turns within a sideways trading range.