What is a range in trading?
put it away is the channel, the corridor, in which the price of an asset evolves. Put another way, the range reflects the price range in which the price of a cryptocurrency fluctuates. To calculate the range, simply subtract the difference between the highest price and the lowest price over 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 stagnating 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 losses
The market for a cryptocurrency can range for several reasons: it can be a natural breathing of the market (such as a technical rebound or a consolidation) which occurs following a pronounced movement. The market can also be wait-and-see before a major publication. Investors then refrain from taking a position before the release of the figure or the 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 the trend reversal may occur. Hence the interest of detecting the range to analyze the market.
👉 More info in our article on reversal figures
What is a range for in cryptocurrency trading?
One of the main attractions of the range is that it allows identify support and resistance levels, two fundamental concepts of technical analysis. The support represents the lower boundary of the channel which corresponds to the lowest price, while the resistance line is represented by the upper boundary and represents the highest price over a given period.
When the market is moving in a range, the price is content oscillate between support line and resistance line which are relatively close. The price bounces off its support and goes up to test resistance, before going down to test support and so on:
Example of a range -Source: TradingView
A ranging market is also a sign that the price of the asset is moving without a marked trend. Typically there is little volume when it occurs as the market moves without a 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 further apart the extremes and therefore the higher the volatility. To note that bollinger bands are also a very good indicator to get an idea of the volatility of a course, while the RSI or the MACD provide valuable indicators on volumes.
How to detect the range exit of a crypto?
The range is particularly useful for spotting a trend reversal in the price of a cryptocurrency. We say that the market breaks out of its range when the resistance or support threshold is definitely crossed: a new momentum can then be set up.
When an asset breaks out of its range on the upside, we then speak of a breakout. After breaking key resistance, price tends to come back to test the breakout point, before bouncing back and continuing its upward trajectory.
The pullback meanwhile appears after the breakout of a support and forms within a downtrend. In this configuration, the price may rebound to retest the broken support before starting to fall again.
Breakouts and pullbacks are usually accompanied by an increase in volatility and volumes, so they are particularly interesting to trade.
The range is perhaps the most fundamental tool in chart analysis. It allows you to determine support and resistance levels over a given period, while showing the level of volatility in the price of a cryptocurrency. Spotting it therefore gives you a better chance of succeeding in your crypto-asset trades.
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