Range Trading

Range trading is a trading strategy that identifies stocks trading in channels. By finding major support and resistance levels with technical analysis, a range trader buys stocks at the lower level of support (bottom of the channel) and sells them near resistance (top of the channel).

I can remember watching the oil market over the course of several weeks. It was going up to a point and then falling back down every morning between 1:00 AM and 3:00 AM. The swings were thousands of dollars every night. I got in at 1:00 am and it went up. Just when it was starting to fall I got out. It worked like clockwork. The problem was that I did not have a system and I eventually gave it all back. That was my first introduction to range trading. We do not use range trading in our trading system but we realize that it is a type of strategy that can be used in trading systems.

Range Trading Strategies

Range trading is much different if not the opposite of trend trading. In a trend following strategy when the price reaches the upper limit of a range the trader is ready to buy. In range trading when the price hits the upper limit of a range the trader is ready to sell.

Some People may trade both trend and range strategies at the same time. In the absence of a trend they may range trade. Once a trend is hit they follow the trend. Some overlapping would occur with this strategy.

The first thing a range trader must do is find a range to trade.

The second thing a range trader must do is trade a system. A system must include things like entry, exits, and risk just to name a few. Always trade with a trading system. If you don’t trade a system then you are trading blind and probably risking too much.

Leave a Reply