Understanding a trading range
A trading range develops when price repeatedly reacts around an upper boundary and a lower boundary.
Range traders attempt to structure trades around those areas while recognizing that the range can eventually break.
Support and resistance
Support is an area where buying interest has historically helped slow or reverse downward movement. Resistance is an area where selling pressure has historically affected upward movement.
These areas should be treated as zones rather than perfectly precise prices.
Range strategy risks
The major risk of a range strategy is that the market may stop ranging and begin a sustained directional move.
A range strategy therefore needs clear invalidation rules so that a trader is not continually applying the same approach after market conditions have changed.
Ready for the next step?
Review what you learned, then continue through the Trading Strategies course.