You may be wondering what is range trading? Range trading is a trading strategy that profits from the fact that prices then to stay (or trade) within ranges. There will be times where you will see the price moving within a trend channel. We define the upper end of that range the resistance and the lower end the support.
So how can you profit from this?
Here is what you need to do to profit from range trading:
1. Indentify the trend channel. In other words, look at the price chart and draw the resistance and the support levels
2. Setup your RSI and Stochastic Oscillator indices (join my mailing list or visit my website if you want to find out more about these)
3. Setup your MACD indicator. The MACD indicator can be a good tool to help you double check whether the price will most likely stay within the range or break out
4. Will all these indicators in place, all you need to do is watch for the price to go near the resistance (in which case you will consider selling) or go close to the support (in which case you will consider buying).
More specifically, when the price gets closer to the resistance level, check the stochastic oscillator to get a better feeling if the market is overbought. If it is the case, then move onto the MACD to find out is a bearish crossover is likely to take place. You can get an idea for this by extrapolating the moving averages. You can now understand how range trading takes advantage of the fact the any asset will sooner or later trade in a range.
If all of the above conditions are met, then you can consider going short as all the indicators point in a bearish direction, i.e. that the price will move down and away from the resistance level.
If you are close to the support level, you do the opposite making sure you are looking for an oversold indicator in the stochastic oscillator and a bullish signal in the MACD.
As you start implementing trading strategies such as range trading don’t forget other factors such as emotions play a very large role in their success. If you are one of my subscribers you would have received the 7 key factors that any trader must master in order to be profitable, and emotions are one of the most important ones.