Range Trading

Stock prices move up and down, and create trends in the market. An higher high, higher low forms an up trend. A lower low, lower high forms a down trend.

A side trend does not exhibit such a trending pattern. It keeps moving up and down, with in a range, some times haphazardly. It seems to go no where.

Such ranges can be traded in two ways.
• By analyzing support and resistance patterns
Usually a range is created because the prices are getting bounced between a support and a resistance. First these two levels are marked by trend lines.

Then a long trade can be taken when the prices hit the support line and rallies up. The trade is protected by a stop loss sell order below the support trend line.

Like wise a short trade can be taken when the prices hit the resistance line and pulls back. The trade is protected by a stop loss buy order above the resistance trend line.

In either case if the stop loss order is triggered, then the position should be reversed. A break out above the range is the beginning of an up trend. A break out below the range is the starting point of a down trend. This break out trade is more fully discussed in different types of chart patterns.

• By analyzing over bought and over sold patterns
Indicators like stochastics, relative strength index, indicates over bought and over sold areas. When the indicator, which is in the over sold area, breaks above the 25 percent line, any short position is squared and a buy position is created. Similarly, when the indicator, goes to over bought area and then breaks below the 75 percent line, all the long positions are covered and a sell position is created.

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