What is a trading range?

Range is one of the foundations of technical analysis. Any cryptocurrency trader, even a novice, needs to be able to identify the range of a market to identify supports and resistances and then make the right investment decisions regarding their cryptocurrencies. We explain how to identify it and what it is for.

What is a trading range?

put it away it is the channel, the corridor, in which the price of an asset evolves. Say it another way, the range reflects the price range where the price of a cryptocurrency fluctuates. To calculate the range, simply subtract the difference between the highest price and the lowest price in a given period.

It is common to hear commentators say that the market is moving in a range: this means that the trend is not marked, the market is stagnant and the price is content to perform. a back and forth movement between two key levelscalled support and resistance.

A range, with support and resistance levels, as well as stop loss

The market of a cryptocurrency can vary for several reasons: it can be a natural breath of the market (such as a technical rebound or a consolidation) that occurs as a result of a pronounced movement. The market can also be wait and see before a major publication. Investors therefore refrain from taking a position prior to the release of the figure or announcement.

Conversely, if the price of a cryptocurrency breaks a long-term support or resistance, it is said to be out of its range. It is in this type of configuration that trend reversal may occur. Hence the interest in detecting the range to analyze the market.

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What is a gap in cryptocurrency trading for?

One of the main attractions of the range is that it lets identify support and resistance levels, two fundamental concepts of technical analysis. Support represents the lower limit of the channel which corresponds to the lowest price, while the resistance line is represented by the upper limit and represents the highest price in a given period.

When the market moves in a range, the price is contained swing between support line and resistance line which are relatively close. The price bounces off its support and rises to test resistance, before falling to test support and so on:

range trading of cryptocurrencies

Example of an interval – Source: TradingView

A floating market is also a sign that the asset’s price is moving without a marked trend. There is typically little volume when it occurs as the market moves with no clear direction. An exit from the range, on the other hand, often results by an increase in volumes and an increase in volatility.

For this reason the range is also an excellent indicator of volatility, because the wider the market range, the more the extremes are distant and therefore the greater the volatility. Note that bollinger bands they are also a great indicator for getting an idea of ​​a price’s volatility, while the RSI or MACD provide valuable volume indicators.

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How to detect the exit from the range of a cryptocurrency?

The range is particularly useful for detecting a trend reversal in the price of a cryptocurrency. Let’s say the market exits its range when the resistance or support threshold is definitively exceeded: it is therefore possible to create a new momentum.

When an asset exits its upward range, then let’s talk about breakout. After breaking the key resistance, the price tends to come back to test the break point, before bouncing and continuing its upward trajectory.

Withdrawal meanwhile it appears after the breakout of a support and forms within a downtrend. In this setup, the price may rebound to retest the broken support before starting to fall again.

Breakouts and pullbacks are generally accompanied by increased volatility and volumes, so they are particularly attractive to trade.

Conclusion

The range is perhaps the most fundamental tool in chart analysis. It allows you to determine the support and resistance levels in a given period, showing the level of volatility of the price of a cryptocurrency. Locating it therefore gives you a better chance of being successful in your cryptocurrency exchanges.

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