Last week we discussed trend trading, and now you know that this is one of the easiest ways to trade. This week we’re going to discuss its opposite, range trading. How to trade in a range? It’s a little more complicated, are you ready? Let’s get started!
What is a trading range?
The financial markets have two major states, they either move in a trend, it can be bullish with a series of higher highs and higher lows. On the other hand, the prices can also move in a downward trend.
However, you will agree that this would be a bit too easy. It would be enough to start shorting on the first lower high. A good part of the time, the markets also move flat, in range trading. A current example of this was the evolution of BTC between 33k and 46k.
Trading ranges are often periods of distribution or accumulation. After an uptrend, prices will tend to move into a range, which corresponds to a distribution phase. Conversely, after a downtrend, there may be an accumulation phase, with large hands refilling their portfolios before the uptrend resumes.
How to trade in a range?
It is possible to use another trading system, such as an oscillator-based system. Oscillators work very well during a trading range, and it is best to buy the low end of the range and sell the high end.
However, this requires more practice and is a strategy best used by experienced traders. You need to be even more careful to avoid making mistakes that could cost you dearly. You can see an example of a range trade below.
We clearly see that the oscillators coincide with the approach of the support or resistance. However, before we can trade, these must first be established, and then we enter the second key.
There is a multitude of strategies that work in range trading and we have deliberately given a simple example here. As with any other strategy, preparation, backtesting, and self-control will remain the main factors for success.
Prior to making your next trading move, it is important to have a clear understanding of which phase the market is at, based on the time frame that you plan to trade.
Range trading can be more complicated than a trend-following system, remember that no matter what strategy you use, the hardest part will be applying your plan to the letter and therefore controlling your emotions.