What is a Ranging Market?

what is a ranging market

The principle of range trading sees prices hit a zone of support and areas of resistance. Thus prices will not usually exactly respect these areas; trading ranges tend to attract plenty of traders, and thus volatility could increase. As markets trend just around 20%-30% of the time, you must learn how to use the range trading strategy to make profits in sideways markets. In fact, even though becoming a trend trader is far more appealing, as we often hear about those who made a fortune from one trade, the opposite could be the truth. Many successful traders are those who know how to make small profits in ranging markets. You can identify a ranging market by using volatility indicators like Bollinger Bands, Average True Range and Donchian Channel.

what is a ranging market

After the candle closes, you will be able to see if it’s a pattern or not. If the next candlestick opens in the range of the sideways moving market, it will be a confirmation of a fakeout for you. If the fakeout appears at the resistance level of the range-bound, traders will open a short position and wait until the trend reaches the support of the ranging market. Trading on the breakouts of the nifty weekly range for example is the opposite of trading support and resistance borders of the trend.

Trade false breakouts

In addition to technical analysis tools like trend lines, moving averages, or Fibonacci retracements, you can use other tools to trade range effectively. Simply put, when you notice the price cannot break above and below support and hycm review resistance levels, you should use the horizontal line feature, which is available on any trading platform. You should then draw support horizontal and resistance horizontal lines and use these levels to buy and sell the asset.

  1. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
  2. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors.
  3. These are usually characterised by pin bar candlesticks that stick out of support and resistance levels.

The amount of volatility can vary from one asset to another and from one security to another. Investors prefer lower volatility so prices becoming significantly more volatile are said to indicate turmoil of some kind in the market. Generally speaking, high-beta sectors may have wider ranges than low-beta sectors. This stacked MA indicator is also free to download and use, again for MT5, with the MA width line showing ranges near the centreline and trends when at its extreme. The rule of thumb typically used is if ADX is over 25 it is trending, under means ranging. Generally, range trading environments will contain somewhat narrow bands compared to wide bands and form horizontally.

Trading the ABCD Pattern

The strength, or reliability, of the trendline as an area of support or resistance depends on the number of times the price has reacted to it. For example, if the price has moved lower off of the resistance trendline five or four times, it’s considered more reliable than if the price only moved off of it two times. For instance, there should be a significant increase in volume on the initial breakout or breakdown as well as several closes outside the trading range. Instead of chasing the price, traders may want to wait for a retracement before entering a trade.

Those that decide to wait for a trend will likely look out for key patterns to emerge. One to look out for would be a symmetrical wedge (triangle) pattern. Bollinger bands are a great indicator to use if want to just rely on one. The top band shows you how high prices reached, and the lower band shows you how low prices reached. Stay on top of upcoming market-moving events with our customisable economic calendar. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism.

As you can see, the British Pound and the US dollar have been trading in a narrow range between 1.35 and 1.42 for quite a long period. But remember, a ranging market can also occur in shorter time frames; hence, 1-Hour, 30-Min, 15-Min, and even 5 or 1-Min. Monitor the range-bound market to either exit from an existing trade or enter a new one. If you feel that the market is shifting from a range-bound market to a trending market, you can enter trading orders that are in favour of the expected market direction. Inversely, when we have low volatility, you’ll see fewer range bars printed on the chart.