The idea
Markets spend much of their time going sideways. In a clear range, price bounces between a floor (support) and a ceiling (resistance) that have each turned it back several times.
Range trading takes those bounces: buy near support after a sign of rejection, sell near resistance, and keep the stop just outside the range, so a real breakout ends the trade quickly.
Watch it play out
Step by step
The rules
Setup
- Support and resistance each touched at least twice.
- The range is wide enough for a target of at least 1.5R.
Entry
- Buy in the lower quarter of the range after a rejection (a long lower wick or a close back up).
Stop-loss
- Just outside the range, under support.
Target
- Just under resistance, not at it: ranges often turn a little early.
Filters that help
- Stop trading the range after a close outside it.
- Avoid it ahead of major news, which ends ranges.
Why it can work
Inside a range, buyers who see value at the floor and sellers who see it at the ceiling keep price in place. Until something new arrives, the same levels tend to work, and each bounce offers a trade with a close stop and a clear target.
The same levels also attract stop orders just outside them, which is why a range trader keeps the stop beyond the edge rather than on it, and why a close outside the range is the signal to step aside instead of waiting for a return.
Worked example
A stock has turned at $60 and $55 twice each. It dips to $55.10, leaves a long wick and the next candle closes at $56.40: buy, with the stop at $54.70.
The target sits just under resistance at $59.60. Risking $100, the $1.70 stop allows 58 shares, aiming for about 1.9R.
When it works, when it fails
Works best
In quiet markets without a catalyst, and in pairs or stocks known for long consolidations.
Struggles
When the range breaks: the last bounce trade becomes a loss. Ranges end eventually, often with a news event.
Common mistakes
- Buying in the middle of the range, where the risk to reward is poor.
- Holding on after a close outside the range, hoping it will return.
- Calling two touches a range on a 1-minute chart.
Variations
- Channel trading
- The same idea with sloping lines: buy the lower line of a rising channel.
What the evidence says
Evidence: Popular, untestedWidely used, but no rigorous public testing. An idea to test yourself.
Support and resistance are among the most used ideas in trading, but range trading rules have no rigorous public study after costs. Whether a range holds depends on the market and the moment.
Treat it as a structure for trading quiet markets, and keep honest records of how your ranges actually end.
Questions
- How wide should a range be to trade it?
- Wide enough that the distance from your entry near support to your target near resistance is at least one and a half times the stop. In a narrow range, spreads and fees take too large a share.
- Should I also sell at resistance?
- The same rules work in reverse: sell near resistance after a rejection, with the stop just above it and the target near support. Many range traders take both sides until the range breaks.
- How do I know a market is in a range?
- When price has turned at roughly the same high and low at least twice each, and moving averages are flat. A range on a higher timeframe is more reliable than one on a 1-minute chart.
- Where does the stop go in range trading?
- Just beyond the edge you are trading from. If price closes outside the range, the idea is wrong.
- What ends a range?
- Usually new information: news, results, a central bank decision. Range traders step aside before scheduled events.