Markets spend a large portion of their time not trending but oscillating between a floor and a ceiling. Range trading exploits this by buying near the floor (support) and selling near the ceiling (resistance), repeatedly, until the range breaks.
Confirming a Range
- ▸Price has reversed at the same approximate support level at least twice.
- ▸Price has reversed at the same approximate resistance level at least twice.
- ▸No clear higher-timeframe trend is pushing price in one direction.
Rule Set
| Element | Rule |
|---|---|
| Setup | Confirmed range with 2+ touches each side, no dominant trend |
| Entry trigger | Rejection candle (pin bar, engulfing) at support (buy) or resistance (sell) |
| Stop-loss | Just beyond the range boundary, past the rejection wick |
| Target | Opposite boundary of the range, minus a buffer for the exit |
| Invalidation | A decisive close beyond either boundary — the range is likely breaking |
Worked Example
USD/CAD has bounced between 1.3550 support and 1.3650 resistance four times over three weeks. Price approaches 1.3555 and forms a bullish pin bar on H4. You buy at 1.3560, stop at 1.3530 (below the wick), and target 1.3630 (just under resistance to account for slippage) — around 2.3R.
Reduce position size near the middle
The best range trades are entered as close to the boundary as possible for the tightest stop and best reward-to-risk. Entries in the middle of the range offer poor risk-to-reward and should generally be skipped.
Pros and Cons
| Pros | Cons |
|---|---|
| Simple, objective, well-defined levels for entries and stops | Breaks can happen violently, catching range traders on the wrong side |
| Good for lower-volatility, quiet market periods | Boring/slow, requires patience between touches |
| Works on any timeframe once a range is confirmed | Ranges eventually always break, so late entries are riskier |
Common Mistakes
- ▸Buying/selling in the middle of the range with no edge.
- ▸Holding a range position through an obvious breakout attempt.
- ▸Treating every consolidation as a tradeable range without confirming multiple touches.