The Ranging (Trendless) Market

When the market appears to be trending sideways, this pattern is referred to as a range. Since there is no apparent direction, another term used to describe this type of market is trendless.

Market Characteristics

  • Boundaries: In a range, the price action is confined within the boundaries of support and resistance lines.
  • Consistency: The highs of the tops are approximately equal to each other, as are the lows of the bottoms.
  • Breakout: A range is likely to eventually break out either above the resistance level or below the support level.

The Range Trader's Focus

Where trend-following traders focus on uptrends and downtrends, range traders put their focus exclusively on identifying and trading ranges.

Trading Strategy and Levels

Range traders utilize support and resistance levels as indicators of market extremes:

  • Support: Identified as the oversold level of the instrument.
  • Resistance: Identified as the overbought area.

Range traders follow a specific tendency for execution:

  1. Buy: Buy at the oversold or support level.
  2. Sell: Sell at the overbought or resistance level.

Detailed Summary

The text describes a Ranging (Trendless) Market, which occurs when price action moves sideways, lacking a clear direction. This pattern is defined by price volatility confined between established support and resistance boundaries. Range traders specialize in identifying these patterns and use the support level (oversold) as a buy indicator and the resistance level (overbought) as a sell indicator, anticipating that the range will eventually result in a breakout.

Key Takeaways

  • A ranging market is also known as a trendless market because it moves sideways without apparent direction.
  • Price action in a range is confined within support and resistance lines.
  • The highs (tops) and lows (bottoms) within a range are typically consistent and approximately equal.
  • A range is expected to eventually conclude with a breakout, either above resistance or below support.
  • Range traders focus exclusively on identifying and trading these trendless patterns, unlike trend-following traders.
  • Support is identified as the oversold level, while resistance is the overbought level.
  • The primary strategy for range traders is to buy at the support (oversold) level and sell at the resistance (overbought) level.