rangetrading

Range trading, also called rangetrading, is a market approach that aims to profit from price oscillations within a bounded area. Traders identify a horizontal price range where the asset has repeatedly moved between a defined support level and a resistance level. In this approach, the trader goes long near support and sells near resistance, with exits planned near the opposite boundary.

Implementation often relies on technical analysis. Traders use horizontal trendlines to delineate support and resistance, along with indicators such as moving averages, RSI, stochastic oscillators, or Bollinger Bands to gauge overbought or oversold conditions within the range. Timeframes can vary from intraday to several days or weeks, depending on volatility and range size.

Market conditions: best in low- or sideways- volatility environments where price lacks a clear trend. Breakouts from the established range present the main risk, potentially triggering rapid losses if the breakout proves sustained. Risk management typically includes defining the range, setting stop losses just beyond the boundary, and using predetermined profit targets within the range or trailing stops on the exit.

Advantages and limitations: Range trading can be simple to implement and offers defined risk per trade if the range is well established. However, it is sensitive to range breakouts, whipsaws near support or resistance, and can underperform in trending markets or during periods of high volatility.

Variants and related concepts: Some traders combine range trading with breakout strategies, waiting for a breakout signal to exit a range and ride the new trend. It is a form of technical analysis and is related to studies of support and resistance, price channels, and mean reversion.