Range trading involves selling the overbought and oversold tendencies at the resistance level and buying at the support or oversold area. This strategy works very well when the market is in an impulsive situation and not taking any deeper uptrend or downtrend move. This strategy is less used by the experts, but in the trending market, this method can be utilized by beginners when they are directionally biased by influencers.
Facts about range trading:
Reversion to the mean
To revert to the mean according to the capitalization of the tendency is the main goal in the range trading. We find a good chance when the price returns to its average after a substantial below or above move, and we get all these things as equal. Remember the fact that range trading might seem easier but elite investors in Mena region consider it as a tough task.
If we study price behavior with powerful concentration, then we will find that the prices are moving after hours and coming downwards by keeping an average flow. To determine the average of the market price, we must use the popular method of moving average calculation. The average price of the past five days can be seen by the calculation of 5 days moving average, the average price of the last 20 days can be seen by the calculation of the last 20-day moving average, and we can make a moving average line by connecting the moving average values of each day. Get more info here by accessing the free educational resources at Saxo.
Support and resistance
To interpret the price chart successfully, we must try to measure the strength of resistance and the support level. This level needs to be strong enough to reverse a downtrend, and it is represented in the chart by connecting the bottom points with the horizontal lines.
Resistance indicates the pricing level where one can sell a financial instrument with a higher profit margin, and this is also represented in the chart by the near-horizontal lines and with their connections at the tops. Based on the trading volume, height, and length, the support and resistance levels generally take their strength. We calculate the depth of the support level and the resistance level based on the areas they are taking up in the chart. The support and the resistance area can be stronger based on the trading volume, and the higher the volume is, the stronger they will be.
The aim of a range trade is to get to the point at which the price has been stretched above or down below the average, and it works like a rubber band and connects the points of the support and resistance levels. It is important to understand that to underscore the market, it should be vacillated between the range expansion process outstanding and non-trending or in the range of contraction period.
An investor must be conscious of the fact that the market is on the right time frame or not, and if the right trend does not exist, then he should be prepared for the odds. Based on a range-bound market, a trader should buy a financial instrument at the support level and sell that on the resistance level, maintaining a longer time frame. A sell stop point must be set under the support level to protect the account from a greater amount of loss. To control greed, we should try to set a stop profit order at a point at which our trade can be closed automatically after winning a certain amount of profit margin.
We should accept the truth that every investor will not be a winner, but he can try his best to succeed in this platform by maintaining a longer timeframe. A businessman must have the idea of setting the stop profit point in the right place, and he should not be dominated by his emotion in this business. One thing he can do is to research the market based on fundamental and technical analysis.