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Range trading

Range trading is a strategy of identifying stocks or assets trading within established price ranges and profiting from oscillations within those ranges. A range trader buys near support (the range’s floor) and sells near resistance (the range’s ceiling), betting that price will bounce between them repeatedly.

For breakout trading (when ranges break), see breakout trading. For trend-following, see trend-following. For mean reversion, see mean-reversion investing.

How range trading works

A stock in a true range exhibits:

  • A clear floor (support) where buyers repeatedly step in.
  • A clear ceiling (resistance) where sellers repeatedly emerge.
  • Multiple bounces off both levels.

A range trader:

  1. Buys near support. When price approaches the support level (e.g., $50), the trader buys, expecting a bounce.
  2. Sets profit target. Target is near resistance (e.g., $55), a 10% gain.
  3. Sells at resistance. When price approaches $55, the trader exits for the gain.
  4. Repeats. As price bounces back down to support, the trader buys again.

Over 10 bounces per year, a trader earning 10% per bounce (minus costs) could achieve significant returns.

Identifying true ranges

A range must be confirmed by:

  • Multiple bounces. At least 3–5 touches of the support and resistance levels.
  • Duration. The range should persist for weeks or months, not days.
  • Volume patterns. Buying volume at support; selling volume at resistance.

A short-term bounce that looks like a range often fails. A 2-week range is less reliable than a 3-month range.

The range-break hazard

Range trading’s greatest risk is when the range breaks:

  • If price breaks above resistance, the range trader holding a short position (having sold at resistance) is whipsawed as price rallies further.
  • If price breaks below support, the range trader holding a long position (having bought at support) is whipsawed as price falls further.

A breakout often means the underlying thesis has changed (stronger business, competitive threat, sector shift), and the range no longer applies.

Market regimes for range trading

Range trading works best in:

  • Choppy, sideways markets. Low volatility, oscillating around a mean.
  • Fully valued markets. When neither bulls nor bears have conviction, prices oscillate.
  • Contraction phases. After rallies, prices often consolidate in a range.

Range trading fails in:

  • Strong up or downtrends. The range is broken; traders get caught on the wrong side.
  • High-volatility regimes. Swings exceed the range, causing sharp losses.

See also

Wider context