We can never deny the importance of strategies in investment sectors. If you are aware of how the trading market works, you must know that it is always unpredictable due to its constant fluctuation. These fluctuations can occur multiple times a day causing changes in trends. A well-educated trader is always aware that a trend never really stays permanently in a price chart. Even if the trend remains stuck on a particular point for several days, it will eventually move upwards or downwards. That’s why investors are always in search of new strategies to help them with their deals for the ranging market.
A ranging market trading strategy is also one of the many kinds of strategies adopted by traders. If executed properly, ranging market trading can help you bring a fortune to your account.
So, without any further ado let’s learn more about ranging market trading.
Range trading is a strategy adopted by traders to buy stocks from oversold areas to minimise costsand sell them at overbought places to maximize the selling price.
In range trading, goods are bought at the support line which is the lowest point the price reaches. Goods bought beforehand are sold at the resistance line to achieve the maximum possible profit.
However, you cannot apply this method in a trending market because the price always remains constant. Check out the demo trading platform at Saxo and develop your range trading skills without risking any real money.
The first and foremost thing that you need to remember while range trading that without doing proper research and market analysis, it is not possible to execute this strategy successfully. To implement this, you need to have a clear idea of supply and demand.
Understanding the ranging market trading
In range trading, an investor first needs to identify the places where the stocks are oversold. For this one needs to consider the local markets as well as the sellers who are willing to sell the stocks at a lower price. Then, after successfully buying things at a lower price, traders should do research to find the locations or in which markets, their commodity is more in demand.
For example, if you want to sell warm clothes, you should try to sell them in cold countries. But, if you sell them in Middle Eastern countries where winters are not at all severe, you will face loss. As a result, your strategy will fail.
In this case, we can say that even though you came up with the right strategy, your lack of research led to loss.
Another important thing to keep in mind while range trading is that, you can take a risk of up to 1% per trade. That means, if you have $10000 in your trading account, you can only risk $100 in that trade.
As the trading market is always volatile, it also comes with lots of risks. So, adopting a trading range strategy can be equivalent to taking a good amount of risk. Range trading is done within a pre-determined time period. So, you need to sell your stocks within that time even though the price is falling.
So, most often traders play on the safe side to ensure their trading securities. This is because taking on too many traders, can lead to loss and it is better to make a small profit than a loss. That’s why, many traders often prefer investing in sectors that are not too volatile like healthcare, telecommunications etc.
An effective way to implement range trading without losing is to set a stop-loss point. A stop-loss point is the margin where you sell your stocks to prevent your losses from getting bigger. So, if you bought stocks at $255 and set up a stop-loss point at $250. Then, even if the trend goes downward, your trade will be closed at $250.
In this manner, you can successfully manage your risks in ranging market trading.