Introduction to Range Trading
Range trading or Trading Range both are the same thing. It is a Forex traders’ technique used when a currency pair trades between a high and low range for a certain period of time. This movement of price between the high and the low point, is called the range trading. This is basically used for achieving the investment objective. Trading range is also used by a few investors to foresee and comment about the money, how it will behave, i.e. will it rise or fall, and what profits to expect from that. In range trading there is no guarantee to investment, as the money can fluctuate, and at times, even surpass the range. This is a well-known technique and is used by different people for different purposes. Few use this when the market is not going too well, then there is also a group of people, who use it alternately to make plans for their future investments. Thus, even after having certain risks, it can prove helpful, only if you can proceed cleverly and correctly.
Advantages and Disadvantages in Range Trading
If honestly considered range trading is a mixed technique, for it has its advantages and at the same time, it has its disadvantages as well.
It is believed that if a range lasts for a long period of time, like for several years, then it surely gives way to many capable and good trades, before it ends. There are various markets and stocks that have lasted for several years, and investing in such ranges have caused real profit. But then at the same time range that lasts for long happens rarely. And since everyone more or less knows that long lasting ranges pay off well, people decide to invest in it, thus increasing the chances of false payments, and investors in place of profit end up losing money.
Next is, it is important to identify which range will pay off well, and which won’t. This is because there are several ranges that are not all worth the investment. The range may seem really good, but if the potential of gaining profit is slim, investing, and taking risks may lead to simply wastage.
Lastly, it depends on the range trader who is trading, because the more he/she knows about trading, i.e. the more he understands the tactics, the better his implementation of the trading range and strategy will be. Therefore the person who is trading, depending upon his implementation, the advantages and disadvantages of range trading happens.
Range Trading Indicators
Indicators are used by all the traders to record, or as they say in the range trading language, to ‘time’ the range. The indicator that is generally used to time the range trades is an oscillator. Oscillator includes, three different types, they are:
- Stochastic trading indicator
- Commodity Channel Index (CCI)
- Relative Strength Index (RSI)
These indicators are very helpful, since they give the extreme limits of the ranges. Also, they not only show, when the sum is near the higher limit or the lower limit, but also gives information about the trade entries as well as exists.
Basic Range Trading Strategies
Range trading strategies are formed using the range trading indicators. Among the oscillators, pick one of your choice and use it for making the strategy.
Let’s say if we choose, Commodity Channel Index (CCI), then the indicator range lies between -100 to +100. If there is a deviation between the said limit, i.e. between +100 and -100, then it is to be noted. Also, a trade signal can be received only when the CCI indicator and the stock price is compared. The upper range is known as the resistant zone, and when the price is near it then the CCI exceeds +100. The lower range is known as the support zone, and when the price is near it, then the CCI is surely below -100. When the price exceeds +100, place a mark at the highest swing and a target just above the support zone. Same way, when the price goes down below -100, place a mark at the lowest fall and a target just below the resistant zone. Now, by taking constant notes the strategies can be formed.
In short, if a range lasts for a long time it provides one with many trading opportunities, but at the same it decreases the profit. So, while choosing a range, be sure that it is a big one, so that you can earn a huge sum from that and not end up losing.