Strategy Library

Range

Range trading

When a market stops trending and moves sideways between support and resistance, you buy near the bottom and sell near the top. The hard part is not the entry: it is spotting when the range has ended.

IntermediateForex crosses, indices, any market that is not trendingQuieter hours such as the Asian sessionM15, H1, H4
Use this strategyPractice it

Example 01

Range trading on a chart

EURGBP · H1Rangetouch, fade

Range: 0.8519 to 0.8581Entry: 0.8523Stop: 0.8501Reward to risk: 1 : 2.4Sample candles, not market data

The rules

Setup
  • A range: price has turned up from support at least twice and down from resistance at least twice
  • No trend: flat averages that price keeps crossing
  • The range is wide enough for at least 2R after spread and costs
Entry
  • Buy near support or sell near resistance, by hand or with a limit order
Stop
  • Just beyond the edge of the range, with room for price to overshoot it
Target
  • The other side of the range, or just short of it
Manage
  • Close the trade if a candle closes beyond the range: assume a new trend has started

Common mistakes

  • Calling a range too early. You cannot know a range has started until it has touched both sides more than once.
  • Stops inside the overshoot. Price often pokes past the edge; a tight stop there gets taken out.
  • Ranges too narrow to pay. After spread and costs a small range leaves nothing to win.
  • Fading a real breakout. A big jump in volume on the break suggests it may carry on.

When it's off

  • Stop range trading it once a candle closes beyond the range, especially on rising volume
  • Skip ranges too narrow for 2R

Words to know

Trading range
A sideways market with a clear high and low that price has touched at least twice each, making neither higher highs nor lower lows. A range on one timeframe can be a trend leg on a lower one.
Consolidation
A short pause where candles get smaller and overlap in a tight area, often before a bigger move. It does not tell you which way that move will go.
Support and resistance
Zones, not single prices, where buyers (support) or sellers (resistance) have shown up before. A level is broken when a candle closes beyond it, and a broken level is often watched from the other side.
False breakout
Price breaks beyond a level but cannot stay there and comes back inside, trapping breakout traders. It is only known after the return, never at the breakout candle's close.
RSI overbought and oversold
Wilder's RSI (14 periods by default) reads above 70 as overbought and below 30 as oversold. It measures the speed of recent gains against losses, and in a strong trend it can stay overbought for a long time.
Overshoot
Price briefly poking past the edge of a range.
Whipsaw
Getting stopped out by noise, then seeing price go your way.

When you make it yours, I'll ask what the rules above leave open. Start with one of these:

  • How many touches on each side confirm a range for you?
  • Is the range wide enough for at least 2R after spread and costs?
  • Where exactly is your stop, and how much room do you give past the edge?
Ask Edge in DT Terminal

From DT Academy

What testing exists

Research on currency markets supports the idea that trends often stall at support and resistance. No test of a specific range rule was found.

Before you trust a backtest

  • Many professional traders risk under 1% of their account on one trade idea, and the common guideline is 1 to 2%.
  • The more versions of a rule you try on the same data, the more likely a good backtest is luck. Decide your rules before you test.
  • Include spread and commission, and practice on dates you have not looked at, before you trust a result.

Sources