What Is Range In Forex Trading?
We’ve gone through both uptrend and downtrend, so now let’s look at an example of when the market isn’t going up or down. When the market appears to be ‘trending’ sideways, we call this a range. In fact, since there appears to be no apparent trend, another term used to describe this type of market is trendless.
In a range, the action of the price is confined within the boundaries of support (bottom) and resistance (top) lines. On closer inspection, one notices that the highs of the tops are approximately equal to each other, as are the lows of the bottoms. A range is more likely to break out either above the resistance or below the support.
Where trend-following traders put a lot of weight on uptrends and downtrends, range traders focus on ranges. Range traders identify support as oversold levels of their instrument, and resistance as the overbought area. Their tendency is to buy at the oversold, or support level and sell at the overbought, or resistance level.
For example, say oil is trading at $65 and you believe it is going to rise to $70, then you might trade in a range between $65 and $70 over the next few weeks. You could try and range trade it by buying oil at $65, then selling it if it goes higher to $70. You would repeat this process until you think oil will no longer trade in this range.
A market which is stuck in a range will generally have low volatility. This means the difference between the highest and lowest price in a given period is small and the market trades in a narrow range. If this price action goes on for an extended period of time, then the breakout from the range might be relatively strong. This would normally be in line with the dominant longer-term trend.
A market can have a wide range. This is a sign that the asset has seen periods of high volatility over the period.
A market which moves between a certain high price and low price is known as a rangebound market. Resistance will be marked by the highs with price action kept below this level. The lows in the market indicate support.
Traders buying and selling in a rangebound market need to identify significant price levels using support and resistance. Volume trends and moving averages could also be used. Precise market timing is needed to trade the ranges.
A market will eventually break out of its range. If prices move higher through resistance, that price may now act as support. Conversely, if prices break lower and move down through previous support, that price may act as resistance.
That’s range in a nutshell! See you soon for the next video, traders.
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