Range Trading

Range trading assumes the market is balanced. Price oscillates between a high and a low that have both been defended more than once. The long is at the low, the short is at the high, and the target is the middle or the other side. The invalidation is a close outside the range. This is the opposite of breakout trading, and the two methods lose money in each other's regimes. A range trader who does not have a rule for "this is no longer a range" will fade the breakout that starts the trend. A breakout trader who cannot sit through a range will donate to the range trader. Knowing which regime you are being paid to trade is the skill.

A range needs at least two tests of each side, otherwise you have a guess. Draw the edges at the prices that were actually defended, not at the most extreme wick if that wick was a one-time spike. Enter on a rejection at the edge, not in the middle. The middle is where the reward shrinks and the direction is a coin flip. Target the other edge or VWAP or the midpoint, and take the profit there. Do not hold a range long for a breakout. If you want the breakout, that is a different order, entered after the close outside, with a stop back inside. The range trade should already be flat.

Use range tactics when the higher timeframe is sideways and volatility is contracting or stable. Stand them down after a volatility shock, at the open of a news day, and when the range has lasted so long that a break is overdue in your own rules. "Overdue" is not a forecast you should trade. It is a reason to reduce size, because the eventual break will be the one that pays the faders badly. Prefer instruments where the edges are liquid. A range in a thin stock is a wide spread with a pattern drawn on it.

Fading a level that has been tested once. Also widening the range after a break so that the break is still "inside." And taking the middle of the range because you are bored. The edge of a range trade is the location. Give up the location and you have kept the risk.

Ranges end. The last fade is the expensive one, and no indicator will reliably flag it before the close outside. Range statistics look smooth because the winners are small and frequent, and then a single breakout day removes a month. The daily loss cap, and a hard "flat on a close outside," are what keep the method alive. Without the exit rule, range trading is just refusal to admit a trend.