Range-bound Trader -- Predicting Highs and Lows – Opportunity for Short-term Money!
A range-bound trader uses a purely technical method of predicting a stock's short-term highs and lows. This type of trader is more active in a range-bound markets, where they trade stocks within a defined channel.
The trader looks for stocks with a clear support and resistance level - see Strategies for a Range-bound Market!. The trader then buys at the support and sells at the resistance. The simplest way for the trader to create a channel is to connect a number of high chart points as well as a number of low chart points. The resulting channel is the range within which the trader operates.
Trading range-bound stock can be great short term money making opportunity by shorting and going long within the range.
The trader may repeat the process of buying at support and selling at resistance many times until the stock breaks out of the channel. The upper boundary of the channel is shown by a trendline that connects the points representing a stock's highs over a given time period. The lower boundary of the channel is identified by connecting the points representing a stock's lows.
The downside of this strategy is that when a stock breaks out of the channel, it usually experiences a large price movement in the direction of the breakout. If the breakout direction is not favorable for the trader's position, he or she could lose badly.
There are 3 types of channelling stocks or rolling stocks, as some may say:
1. Ascending-Stocks bounce up and down the channel in an uptrend.
2. Descending-Stocks bounce up and down the channel in a downtrend.
3. Horizontal-Stocks bounce up and down support and resistance levels in a horizontal trading range.
Trading Range Bound Stocks
A few ways to trade range-bound stocks are:-
1. Go long just above the high of the 1st bar, when stock bounce up from support line.
2. Go short just below the low of the 1st bar when stock bounce down from resistance line.
3. Go long when stock breakout of the channel to the upside.
4. Go short when stock breakout to the channel to downside.
5. Look for obvious points of support and resistance where buyers stepped in to move the stock back up and where sellers stepped in to drive the price back down. Once those two points are established there is a high probability that the points will be held again in the future.
6. This range-bound movement-also known as channeling-will eventually break but there is usually 2-3 good trades before that happens.
7. The range-bound movement usually occurs at the end of a large move as the bulls and the bears fight over the direction of the next move. The range can revolve around past gap support or gap resistance, moves from above to below major moving averages.
A range-bound market offers various opportunities to profit in this market. In this example, the trader is able to use the zigzag motion to their advantage, by simply identifying major support and resistance levels, and then buying at the support level and selling at the resistance. There are various technical indicators that can help determine times of entry and exit points.
Also remember to put a stop loss to protect your investment in case the analysis is wrong.
Besides buying and selling stock other trading strategies you can use are spread betting, CFD trading and options trading, to name a few.
A range-bound trader's strategy requires fairly constant monitoring of the stock due to the fact that when a stock breaks out of a range it may make a dramatic and sudden price move.
”Success is simple. Do what's right, the right way, at the right time.”