Range trading is a strategy designed to profit when prices oscillate between defined support and resistance levels. While trend followers wait for breakouts, range traders capitalize on the predictable bouncing within established boundaries. Since markets spend most of their time in ranges, this strategy offers frequent opportunities.
What is a Trading Range?
A trading range occurs when price moves sideways between horizontal support and resistance levels. Characteristics include:
- Clear upper boundary (resistance) where sellers emerge
- Clear lower boundary (support) where buyers emerge
- Price bounces between these levels multiple times
- No clear trend direction - sideways movement
Key concept: Markets trend only about 20-30% of the time. The remaining 70-80% is spent in consolidation ranges, making range trading a versatile strategy.
Identifying Trading Ranges
Horizontal Range
The classic range with flat support and resistance:
- At least 2-3 touches of both support and resistance
- Clear horizontal lines can be drawn through highs and lows
- The more touches, the more reliable the range
Channel Range
Price moves between parallel trendlines:
- Ascending channel: higher support and higher resistance
- Descending channel: lower support and lower resistance
- Trade bounces within the channel
Range Confirmation
- ADX below 20 indicates no trend/range-bound
- Price repeatedly respects the boundaries
- Volume often decreases during range formation
- Bollinger Bands contract and move sideways
Entry Rules for Range Trading
Buy at Support
- Identify a clear support level with multiple touches
- Wait for price to approach support
- Look for bullish reversal confirmation (hammer, engulfing)
- Enter when price bounces and starts moving up
Support Entry Example
Stock trades in a $48-$52 range for three weeks.
Price drops to $48.20 and forms a bullish hammer.
Entry: Buy at $48.50 when price breaks hammer high.
Stop: $47.50 (below support).
Target: $51.50 (near resistance).
Sell at Resistance
- Identify clear resistance with multiple touches
- Wait for price to approach resistance
- Look for bearish reversal confirmation (shooting star, engulfing)
- Short or sell when price reverses from resistance
Entry Confirmation Signals
- Candlestick reversal patterns at support/resistance
- RSI divergence at the boundaries
- Decreasing momentum as price approaches levels
- Volume spike on reversal candles
Exit Rules for Range Trading
Stop Loss Placement
- Place stop just outside the range boundary
- For buys: stop below support (leave buffer for false breaks)
- For shorts: stop above resistance
- Accept that breakouts will cause stop-outs
Profit Targets
- Opposite boundary: Target resistance for longs, support for shorts
- Middle of range: More conservative, higher win rate
- Percentage of range: Target 70-80% of the range width
Scaling Out
Consider taking partial profits:
- Sell 50% at the middle of the range
- Hold remaining 50% for the full target
- This improves average win rate while capturing bigger moves
Complete Range Trade
Range: $100 support, $110 resistance ($10 range).
Entry: Buy at $101 after bounce from support.
Stop: $99 (2% risk, below support).
Target 1: $105 (middle) - sell 50%.
Target 2: $109 (near resistance) - sell remaining 50%.
Average exit: $107, risk-reward 3:1.
Range Trading Techniques
Fade the Boundaries
The core range trading approach:
- Sell when price touches resistance
- Buy when price touches support
- Always use stops in case of breakout
Wait for Confirmation
More conservative approach:
- Do not enter just because price touched support
- Wait for a reversal candle to form
- Enter on break of the reversal candle
Trade the Retest
After a false breakout:
- Price breaks above resistance then falls back into range
- Enter short as price re-enters the range
- Stop above the false breakout high
- False breakouts often lead to moves to opposite boundary
Managing Range Breakouts
Every range eventually breaks. Prepare for it:
Signs of Impending Breakout
- Range narrows (volatility contraction)
- Volume increases as price approaches boundary
- Multiple failed tests at one level
- Strong momentum into the boundary
How to Handle Breakouts
- Accept stop-outs as a cost of range trading
- Consider reducing position size near potential breakout
- Switch to breakout trading if range clearly breaks
- Watch for false breakouts to re-enter range trades
Best Conditions for Range Trading
- Low volatility environments
- Well-established ranges with clear levels
- No major news or catalysts expected
- ADX below 20
- Overall market also range-bound
When to Avoid Range Trading
- Before earnings announcements
- During high volatility periods
- When ranges are too narrow (not enough profit potential)
- When the overall market is strongly trending
- When the range has lasted too long (breakout likely)
Range Trading Checklist
- Is there a clear, established range?
- Has support/resistance been tested at least 2-3 times?
- Is price currently at a boundary (not in the middle)?
- Is there a reversal signal?
- Is the range wide enough for profitable trades?
- Is my stop outside the range boundary?
Common Range Trading Mistakes
- Trading ranges that are too narrow
- Not using stops and getting caught in breakouts
- Entering in the middle of the range instead of at boundaries
- Ignoring reversal confirmation
- Fighting clear breakouts instead of accepting the loss
- Overtrading by taking every touch of support/resistance
Track Your Range Trades
Pro Trader Dashboard helps you analyze which range setups and boundaries work best for your trading.
Summary
Range trading profits from the predictable bouncing between support and resistance in sideways markets. The strategy involves buying at support with reversal confirmation and selling at resistance, while using stops outside the range to protect against breakouts. Since markets spend most of their time ranging, this approach offers frequent opportunities. The key is identifying well-established ranges, waiting for confirmation at the boundaries, and accepting that eventual breakouts are part of the strategy.
Learn more: support and resistance and breakout trading.