Most of the time the market isn't trending but moving inside a range. Here are three ways to work a range — the breakout, the bounce off the edges and the false breakout — and how not to get chopped up.
Price moves between two levels; highs and lows aren't being broken.
Method 1
Breakout: enter on the exit from the range with a close beyond the edge.
Method 2
Bounce: shorts at the top edge, longs at the bottom edge.
Method 3
False breakout: price pokes beyond an edge and immediately returns — enter the other way.
What a range is
A range (sideways market, flat) is a period when neither buyers nor sellers can take control. Price bounces between an upper and a lower edge, and moving averages are flat and tangled. A range is usually position-building before the next strong move.
Method 1: the breakout
The longer a range lasts, the more energy builds up. The exit is often sharp: the stops of those trading against the breakout and the orders of those waiting for it fire together.
Price closed above the top edge and moved into a trend. Illustrative data.
Enter after a candle closes beyond the edge or on the retest of the broken edge. Stop inside the range.
Method 2: the bounce off the edges
While the range holds, its edges act as levels: look for shorts at the top and longs at the bottom. The target is the opposite edge.
Shorts at the top edge, longs at the bottom. Works until the range breaks.
Method 3: the false breakout
The most interesting method. Price moves beyond an edge, grabs the stops, finds no follow-through and comes back inside. Those who sold the breakdown are trapped — and the move the other way is often strong.
Price dipped below the bottom edge, came back inside — and ran to the top and beyond. Illustrative data.
Enter after price returns inside the range. Stop beyond the extreme of the false breakout.
Rules for trading a range
01
Make sure it's a range
At least two touches of each edge.
02
Don't trade the middle
There's no edge inside the range — only at the boundaries.
03
Pick one method
The bounce and the breakout contradict each other: decide in advance which one you trade.
04
Wait for confirmation
A close beyond the edge for a breakout, a return inside for a false breakout, a candle reaction for a bounce.
A narrow range with frequent pokes through the edges is "chop". Every method loses there. If the range is smaller than your stop distance, it's better not to trade.
Common mistakes
Entering on the first touch of an edge
Until the edge is confirmed, it's not a range, just a pullback.
Trading moving averages in a range
The averages are flat and give false signals. Levels and oscillators work in a range.
Chasing a breakout without a close
A wick through the edge is a common trap. You need a candle close beyond it.
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