Range Trading

Range trading takes advantage of non-trending markets by identifying consistent high and low prices, known as resistance and support bands. The idea of trading within a narrow range can be applied to a variety of markets including forex, stocks and cryptos, enabling the trader to buy and sell when an asset is oversold or overbought.

In this tutorial, we explain how to range trade, with an example strategy using range bars. Additionally, we discuss how expert advisor robots can assist range trading strategies.

Brokers

The leading US trading Exchange. Nadex offer genuine exchange trading to US clients on Binary Options. Fully regulated by the CFTC.
Cryptocurrency
No
Regulator
CFTC
MT4 Integration
No
Min. Deposit
$0
Min. Trade
$1
Bonus
$100 Deposit Bonus Offer
Forex.com boast a global reputation. Regulated in the UK, EU, US and Canada they offer a huge range of markets, not just forex, and offer very tight spreads and a cutting edge platform.
Cryptocurrency
Yes
Regulator
CySEC, IIROC, NFA, CFTC, FCA, FSA, and CIMA
MT4 Integration
Yes
Min. Deposit
$100
Min. Trade
$1
Bonus
None
NinjaTrader offer Traders Futures and Forex trading. Use Auto-trade algorithmic strategies and configure your own trading platform, and trade at the lowest costs.
Cryptocurrency
No
Regulator
NFA, CFTC
MT4 Integration
Yes
Min. Deposit
$50
Min. Trade
Varies by asset
Bonus
None
EagleFX is a popular trading broker offering forex, stocks, cryptos & commodities.
Cryptocurrency
Yes
Regulator
Unregulated
MT4 Integration
Yes
Min. Deposit
$10
Min. Trade
0.01 lots
Bonus
None
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Cryptocurrency
Yes
Regulator
FCA
MT4 Integration
No
Min. Deposit
$200 ($50 in US)
Min. Trade
$1
Bonus
None
Show All Brokers ⇩

See all Brokers

What Is Range Trading?

Market prices often move horizontally, meaning there can be limited opportunities to enter a market. Range trading capitalises on the fact markets fluctuate within a range during these sideway trends, defined by a resistance band and support band.

Range trading chart
Resistance and support bands

Traders can take advantage of the range by buying at the support price and selling at the resistance price until a breakout occurs.

Range Trading Vs Trend Trading

Range trading can be used on any timeframe from minute to monthly and is frequently used as a day trading strategy. Traders usually employ a system where they hold long and short positions at different times, unlike long term investors who hold a position reflecting the overall direction of the trend.

Range Trading Markets

Range trading strategies can be applied to any asset including currency, stocks and cryptos. The main difference between these assets is the volatility and therefore the range. Higher volatility instruments such as Bitcoin means increased risk when range trading, but can also yield greater profits.

The best range trading forex pairs are currency crosses, which are those that do not have USD as part of the pair and therefore have a weaker trend. A good example is EUR/CHF, as the European and Swiss economies observe very similar growth rates.

Even though indices such as the Nifty Bank and the S&P 500 see overall growth trends, they can be good options for intraday range trading.

Range-bound trading can also be applied to binary options, meaning the payout is a fixed amount or nothing. With binary options, traders speculate whether the price will stay within the investing range.

Range Trading Strategies

Though the true range-bound definition is widely recognised, there are numerous technical indicators and expert advisor methods available which can be overwhelming. Here we provide a step by step example of a range trading strategy using bars.

How To Range Trade

Identify A Suitable Market

Firstly, traders must identify a non-trending market. This can be done using a moving average indicator, with a timescale no greater than the period being analysed. Below, the 50 day moving average indicator line in blue shows an uptrend followed by a flatter line, which signals a sideways market suitable for range trading.

The Average Directional Index (ADX) is another way to measure the strength of a trend, without taking into account its direction. It uses a scale from 1 to 100, with an index below 20 often considered to be a sideways market. The red line in the lower graph shows the ADX dropping to below 20 as the market flattens.

Online screeners are another way to filter stocks to identify those suitable for range trading.

Online range trading charts
Moving average (blue line) and ADX (red line) indicators can be used to identify non-trending markets

Identify The Trading Range Area

The next step is to identify the range area for trading. This usually requires a price to have recovered from the support band and dropped from the resistance band at least twice, to ensure that the price is not temporarily rising or dropping as part of a longer trend.

Range areas can be identified on a candlestick chart, though a range bar chart which is based on price movement rather than time allows the trader to view the volatility of a market too. A bar is completed and a new one started each time the price moves within a specified range. This means a highly volatile market will be displayed with a higher number of bars.

The range bar trading strategy helps by removing noise from charts, especially if a price is oscillating in a narrow range, which will be displayed as a single bar only. Turning points become clearer and support and resistance bands are emphasised.

Identifying range trading bars
Defining the range area

Wide trading ranges indicate volatile markets, which, although may yield greater returns, come with increased risk. In forex range trading, the Average Daily Range (ADR) indicator shows whether the market range is higher or lower than usual, helping to quantify the risk of trading a particular currency pair. The Average True Indicator (ATR) does the same but includes price gaps in its calculation.

TradingView is a website offering a useful interactive charting tool, where indicators such as average daily range and central pivot range can be applied to filter suitable trading areas.

Execute Range Trading

Once the trading area has been set up, range trading can be executed by simply buying and selling when the price hits the support and resistance bands. Placing stop orders at or just outside the trading range is good practice. However, using indicators in parallel can provide further insights. For example, the RSI oscillator value indicates an oversold (below 30) or overbought (above 70) stock condition, signalling to buy and sell respectively.

Range trading indicators
RSI range trading strategy

Breakout

As a rule, the range trading pattern will eventually cease and the market will break out of the range. Predicting how and when this trading range breakout will play out is difficult, but indicators can be useful here too.

Bollinger bands are lines applied usually two standard deviations above and below the price, indicating how volatile the market is. While a Bollinger band range expansion suggests an extension of the price pattern, a range contraction or narrowing is often seen immediately prior to a breakout.

Range trading tools
A contraction of Bollinger bands is seen before a breakout from a range

This technique is very similar to Narrow Range (NR) bar trading, which is a calculation also based on the philosophy that a volatility contraction is often followed by an expansion.

Opening Range Breakout

It’s possible to take advantage of range breakouts, in particular when the market opens, as this is often the most active trading period of the day.

By looking at the short period after the market opens (usually 15 or 30 minutes), traders can identify the opening high and low range. The direction from which the price breaks out from this opening range is an indication of the trend for the rest of the day.

Range Trading With Bots

Algorithmic robots can be used to range trade automatically. For example, the strategy bot can be set to buy as the price crosses above the support band, and sell when it crosses below the resistance level. A new sell trade can be automatically opened at the same time too.

Trading bots can be downloaded from various libraries, depending on which platform the trader is using. For example, MetaTrader has a selection of bots that can be used for range trading called Expert Advisors (EA). Each comes with the option to configure variables such as lot size, resistance and support limits.

Traders can also generate bespoke bots by coding their own range trading algorithms, providing full control over setup of the range and risk management. The programming languages used to develop these robots are platform-specific, with MQL offered by the MetaTrader platforms.

Pros & Cons Of Range Trading

Pros

There are many reasons range trading is a popular strategy:

  • Traders can take advantage of regular periods where markets aren’t trending
  • Range trading can be applied to any market, meaning the user is not limited to specific hours
  • Once the range is defined, the trader has clear entry and exit points, making it easy to invest and place stop losses
  • Generally, range trading chases smaller profits across shorter timescales, which reduces the risk of the price being dramatically affected by economic news

Cons

There are also several risks associated with range trading:

  • Knowing when a market is within a range and when it will break out is difficult, even for experienced investors
  • Range trading requires reasonably frequent investing, increasing commission fees that will eat into profits
  • Identifying suitable markets and ranges can be time-consuming

Because of this, it’s recommended that users test their range trading strategies using a demo account with virtual funds first.

Final Word On Range Trading

Range trading is a versatile technique that can be applied to all markets when there is no clear trend direction. The hardest part can be identifying the support and resistance bands for a range, though once these have been defined, the buying and selling points are clear. Demo accounts are an excellent way to practice defining range areas and predicting breakout points.

FAQ

What Is Range Trading?

Range trading takes advantage of markets that fluctuate within a scale of consistent highs and lows. By setting support and resistance bands, traders can buy and sell at these limits.

Range Trading Vs Swing Trading - What's The Difference?

Swing trading is a short to medium-term strategy which can be applied to range investing. Specifically, traders will be interested in price fluctuations within a range across daily or weekly timescales.

Which Assets Can I Range Trade?

Range trading can be applied to all assets including forex, stocks, indices and a commodity such as gold. While the same principles apply, the range area and timescales will depend on the market. For example, intraday trading is better for indices that have an overall growth trend such as Banknifty or the FTSE 100.

Where Can I Range Trade?

Range trading can be carried out on any broker that offers access to the market of interest. The TD Ameritrade thinkorswim platform is a popular choice for US range traders, who offer a free demo account and PDF guides with extra guidance information.

Is Range Trading Easy?

The difficult part of range trading is setting appropriate limits and predicting when the market will break out. Once the support and resistance bands are in place, knowing when to enter and exit the position is straightforward.