Range Trade Setups And Ways To Trade Range
Range Trade is very important as 70 % market stays in the range and only 30 % stays in the trend. What you might feel the market is in a trend, but that is move inside a range in the bigger time frame. This is why a bigger time frame always tells more stable observations about the particular security. Now we will explain in this article about the range trade setup and analysis and what exactly is a range and how you can identify the range. You will find everything related to the range in this article.
What is a range in the stock market?
Market stays in three forms, trend, range, and channel. We will discuss the here range today. The range is also called the " Kangaroo " Market. Which means a sideways market. When the price of a security is staying between a certain price range. This situation is called a sideways market. The range is an inevitable situation in the market it will definitely come after a trend. If a trend has to discontinue even it has to continue going up or down, then at some point range will form. Just to understand the Rage better we will take the help of one example.
See the price range in ICICI bank, that we have drawn with yellow lines. This range is between 346 to 377. So, when the price was moving in this range at that time we could have said that the market or ICICI was in a sideways market or range. If a stock is moving between a price range for a period in that zone, then we have to look for a range trade setup that we will discuss later in this article.
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How To Identify A Range?
Now the question comes how to identify one? after knowing that what is a range?. If a range is an official one how could you know that? To know a range you just have to keep a very simple point in your mind that is, you have to look for the 4 touches on a certain level. If a stock is touching certain levels four times, then you can consider that an official range. When a stock has made its move then all people can identify the range but in the live market, it's very difficult to judge the market is going in range or not. If you keep this four-touch logic in your mind then this will be very helpful to you and it will be easy as cake for you to identify the range in the live market. This is how you can identify a range.
How To Trade A Range? How To Take The Entry In A Range?
Trading in a range is not hard, you just have to understand the price action. If you don't understand the price action, if you don't understand the candlestick and their psychology then it might be difficult for you to take the entry and do exit in the range. You can trade range in two ways. One is you can trade inside a range, another way to trade a range is you can trade the breakout of the range.
We will discuss the trading range from the inside first. If the price is moving inside the range we will discuss first, how you can trade if the price is inside the range. Before we starting explaining this we would like to tell you in advance. Trading in range needs a lot of expertice, control over your emotions, and absolute knwloege of price action.
Trading Range From Inside
Trading Range from inside is very difficult and needs a lot of expertise. If you trade the range from inside then your trading analysis has to be very precise. The price in range is between supoort and resistance. The upper range is acting as resistance and lower is acting as support. When we are trading range from inside we need to see how sellers and buyers are reacting in their respected area. Only then we can trade the range. See the above image for reference. Resistance is indicating sellers area. The sellers are coming from there. Now we need to understand how strong they are reacting and how submissive buyers are behaving in that particular area. If you understood this then you can take a sell trade. When you see the opposite of this in the buyers' area that means buyers reacting strong and sellers reacting weakly at the bottom. You should take the entry in the stock.
That's how you can trade the range from inside by understanding the sellers are buyer's area reaction. See the marked area in image indicating strong reaction of sellers and you can see the result. If you understood this you can easily get the quick return.
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Trading The Breakout Of Range
Whenever we witnesses a breakout or breakdown, try to observe the respected territorial breaker. If buyers are breaking the resistance means we are seeing a breakout not breakdown. Then obviously buyers were strong. Now the questions which should come in your mind is how strong buyers are and how strong sellers are opposing that is what matters in that case. See the image below for reference.
Now see the breakdown in this case. You see sellers were very aggressive at the time of the breakdown. What we told you above is, you need to notice the buyers reaction next. They are reeacting not that strong so we could have taken a trade here for short sell.
That's how you trade the range from inside and the breakout or breakdown of the range. How and when you need to take the entry. It needs next level of expertise in price action. We have explained everything you need to understand the range and how you can trade range. Still if you face any doubt feel free to contact us on our social media channels.
You can read this article to understand the most important candlestick in share market.
We have also given you the option to understand this through a video. You can watch this video to understand this concept very well. If you still feel like you need to know more please get in touch with us.