Range Trading - Definition

Range trading or range-bound trading is a strategy that profits from the fact that prices then to stay (or trade) within ranges. It can be used to trade currencies, stocks and other tradable instruments. This strategy is put into place by first identifying major Support and Resistance levels using techniques in Technical Analysis, followed by buying (forex or stocks) at the lower level of support and selling them near resistance. A trader can use this strategy as Long as the stock or Currency Pair does not barge out of the Channel. It is a non-directional strategy which is based on the underlying assumption that 80% of the time, price Action does not Trend, but rather channels. Hence a range bound market offers various opportunities to profit in this market. Since the strategy works within a channel, it is sometimes referred to as channel trading.

There are certain currency pairs that best characterizes a range bound market, which is the number one rule to successful range trading. Usually currency pairs that do not have the USD involved in the pair, known as crosses, provide best range-bound opportunities. Examples of such currency pairs are EUR/AUD, EUR/GBP, EUR/CHF and CHF/JPY. A related approach to range trading is looking for moves outside of an established range, called a breakout (price moves up) or a breakdown (price moves down), and assume that once the range has been broken prices will continue in that direction for some time.

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