How to Survive Cryptocurrency Range Trading
In technical analysis, range trading happens when the market reaches a point where it’s no longer making any higher highs and higher lows – or lower lows and lower highs. Instead, it’s just trading in a horizontal fashion between a defined level of support and a defined level of resistance. The price action is moving between these support and resistance levels.
Once you see that type of formation on any price chart and on any time frame, we’ve got a range that we can examine a little bit more closely and trade off the support and resistance level until the range breaks out and gets invalidated.
How to Trade in a Range
The way we’re going to define our price ranges is quite simple: we will look for at least two price touches of support and two price touches of resistance. Once we’ve identified the range and we have validation of the range, then it becomes a pretty simple matter of just going long at support and selling at resistance.
You can make great use of an oscillator indicator in a ranging trading environment to confirm the test of support/resistance and to add confluence to your price action readings.
It’s important not to get in trades in the middle of the range because you’re taking on more risk and the profit margin also decreases. It is important to remember that the more a level is touched, the higher the risk that it will be broken at the next test.
examples of Range Trading
After a raging uptrend, the price action in this Bitcoin chart is settling into a range with the support at $9,800 and the resistance at $10,700. It’s trading within this range and at some point, it’s going to break out and we don’t know if it’s going to be to the downside or the upside.
The price action is trading in a range with the support at $10,000 and the resistance at $10,500. The range is getting touched and the price action is trading in a horizontal manner.
Quite often, when price action is trading between these levels of support and resistance, you can enter into a trade and make a nice profit. Because after all, you’re trading between these support and resistance levels.
You’re not going to make the same amount of money with range trading as you would with a breakout trade but you’re also not taking on as much risk. This could be a good strategy to have in your toolbox as a trader.