Nifty 50 IndexEducation
How to Trade Range-Bound Prices
Unfortunately, Clear trends don’t always exist. The price generally trends only 20% of the time and remains range-bound or sideways for an extended period.
Most common is the condition that prices remain sideways and move in range-bound fashion for an extended period.
And because there is no clear directional bias, knowing how to trade this ranging situation is essential.
How to Trade the range-bound prices?
Trades have two choices; one is to assume that the range is going to continue or trade the Price in the direction of the probable range breakout.
Choice 1,
If the Price is remaining Range-bound.
In this case, we assume that Price is not going to break the Range and take resistance at tops or support at the bottom and eventually going to the other side of the Range.
For example, TCS was a short opportunity in October 2019 and again in January 2020. And a buying opportunity was there in December 2019.
Choice 2,
Trading the price breakout.
When prices breakout from a range, the movement can be fast and extremely large. Trading breakouts is not that easy. Often the breakout will come from a news event, or Earnings, or some other reason that causes high volatility in prices.
It often takes more than one attempt to catch a breakout.
Because of a news event, earning surprises or announcements leads to volatility and extreme price moves. Price movement can swing in both directions, and there will be many instances in which support and resistances get broken, but the Price quickly reverses into the opposite direction of a breakout resulting in a ‘false breakout.’
Generally, a breakout occurs because of the reasons as mentioned above, the probability of success in breakout setups will be lower compared to other trading setups. And because of the lower probability of success, traders need to adjust risk/reward ratios by tighter stops and reasonable profit targets.
*Failed Breakout
Ways to trade range-bound prices.
Most common is the condition that prices remain sideways and move in range-bound fashion for an extended period.
And because there is no clear directional bias, knowing how to trade this ranging situation is essential.
How to Trade the range-bound prices?
Trades have two choices; one is to assume that the range is going to continue or trade the Price in the direction of the probable range breakout.
Choice 1,
If the Price is remaining Range-bound.
In this case, we assume that Price is not going to break the Range and take resistance at tops or support at the bottom and eventually going to the other side of the Range.
For example, TCS was a short opportunity in October 2019 and again in January 2020. And a buying opportunity was there in December 2019.
- You can choose to trade the Range by shorting at resistance or buying at support.
Choice 2,
Trading the price breakout.
When prices breakout from a range, the movement can be fast and extremely large. Trading breakouts is not that easy. Often the breakout will come from a news event, or Earnings, or some other reason that causes high volatility in prices.
It often takes more than one attempt to catch a breakout.
Because of a news event, earning surprises or announcements leads to volatility and extreme price moves. Price movement can swing in both directions, and there will be many instances in which support and resistances get broken, but the Price quickly reverses into the opposite direction of a breakout resulting in a ‘false breakout.’
- Breakout Retest Entry
Generally, a breakout occurs because of the reasons as mentioned above, the probability of success in breakout setups will be lower compared to other trading setups. And because of the lower probability of success, traders need to adjust risk/reward ratios by tighter stops and reasonable profit targets.
*Failed Breakout
Ways to trade range-bound prices.
- Buying an upside breakout
- Buying at a support
- Buying a retest after an upside breakout
- Selling a downside breakout
- Selling at a resistance
- Selling a retest after a downside breakout
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