Trading range happens when there are specific security trades between consistent high and low prices in a period of time. Each range has support and resistance price. The peak of that security range offers the price resistant and the lowest part of that trading range gives price support.
Trading Range Definiton
There is a momentum (can be positive or negative) building happen when a stock price falls below its trading range. There is a breakout if the price of a security goes above the range. There is a breakdown, on the other hand, if that price goes below the range.
Usually, breakdowns and breakout rely so much on the volume of that asset. The volume represents the widespread participation of traders and investors within the market.
Mostly, traders assess the duration of a trading range. Many times, traders will find a range-bound period after a large trending move.
If you are a day trader, you may want to use this strategy for the first half-hour from the session for your reference point to form the intraday strategies. For instance, you can purchase a stock if the stock breaks higher than the opening range.
Trading Range Strategies
You may have heard a range-bound trading strategy. It is a strategy that identifies and capitalizes on the stock in price channels. Once these traders find the major support and resistance, they connect them with horizontal trendlines.
After that, they will make a purchase at the lower level of the channel and sell that stock when it is at the peak of the channel.
Support and Resistance
Mostly traders can buy a security when its price is near the support and sell it when the price is near the resistance if the security has a well-established the range.
They can use technical indicators, like relative strength index (RSI) or commodity channel index (CCI), to confirm the possibility of overbought and oversold conditions.
Breakouts and Breakdowns
Traders usually make an entry during the breakout or breakdown of this range. To make sure that their move is valid, they can utilize other indicators, like price action and volume.
