Range trading is one of the most feasible trading methodologies. This method is usually related to lack of market direction and may be a handy tool to possess within the absence of a trend. It is an easy strategy that can be used by the trader on every financial product. As its name indicates that you have to figure out the range in which the product regularly trades in. It includes the mechanism of buying at a low price and selling at a high price. This trading can be broken down into three major steps:
Steps for Range Trading
There are basically three steps which are involved in range trading.
- Figure out the range: The main step of range trading is to figure out the range. It can be done by making use of resistance and support zones. One can create these zones by determining the series of short and lows term high and by joining the areas through horizontal lines. Resistance is the upper range where we look to sell a range and support is the place where price is delayed by the traders. A good range must have a flat resistance and a flat support. The chance of gaining profit from this trading automatically increases if both the resistance and support are flat.
- Time your entry: It is the step in which a trader have to determine the best range. It can be done through the most simple and popular indicator which is called Oscillator. Some of the famous Oscillators are Stochastic, RSI and CCI. These indicators are used to find the price through mathematical calculation which makes the indicators to fluctuate near center line. The range traders make use of this trading to make a great profit by selling at resistance and buying at support.
- Manage risk: It is the final stage of range trading. If in the event, a level of resistance or support breaks and the trader wants to exit from this situation. The simplest way to do this is by the use of a stop loss over the previous high at the time when selling the resistance zone of a range. Once you mastered on this, you can practice your range trading skills.