Range Trading Strategy in Day Trading - dummies

Range Trading Strategy in Day Trading

Many day traders start out with a standardized strategy for approaching the stock market. Range trading, or working within normal high and low movements, is a strategy that has worked for many. Range trading, sometimes called channel trading, starts with an understanding of the recent trading history of a given security.

Getting this history involves looking at the price and volume charts to identify typical highs and lows during the day as well as the typical difference between these two prices. With this information, the trader simply buys low and sells high. When the security dips in price, the order to buy is placed; when it rises, the order to sell goes in.

Most range traders use stops and limits to keep their trading in line with what they see. A stop limits the loss if the security keeps dropping below your entry point, and the limit order gets you out at a profit if the security moves to the top of the range.

Range trading works in a normal market with just enough volatility to keep the price wiggling around during the day but not so much that it breaks out of the range and starts a new trend.