What exactly is a range-bound market?
A range-bound market is one in which prices fluctuate between a specified high and low.
The high price operates as a big resistance level that price cannot appear to overcome.
Similarly, the low price functions as a big support level that price cannot manage to break through.
The market movement could be horizontal, range, or sideways.
It’s also called as a “choppy market” or simply as “being choppy”.
The inverse of a surging market is a choppy market. It’s similar to rough ocean waves.
There is no apparent direction in a choppy market, and the price simply “chops around” or “chops up and down” within a relatively small range.
Trend traders tend to get “chopped up” in bumpy markets.
ADX in a Ranging Market
Bollinger Bands contract when the market is less volatile and expand when the market is more volatile.
As a result, Bollinger Bands are an excellent tool for breakout tactics.
When the bands are thin and contracted, volatility is low, and price movement should be limited to one direction.
However, if the bands begin to widen, volatility rises and more price movement in one direction is anticipated.
In general, range trading environments will have narrower bands than wide bands that form horizontally.
The Bollinger Bands are contracted in this scenario since the price is only moving within a narrow range.
A range-bound strategy is based on the assumption that a currency pair has a high and low price that it generally trades between.
The forex trader hopes to benefit by buying at the low price and selling near the high price.
The trader hopes to benefit by selling around the high price and buying near the low price.
Channels like the one seen above and Bollinger Bands are popular techniques to utilize.
Using oscillators, such as Stochastic or RSI, can assist you pinpoint a turning point in a range because they can indicate possibly oversold and overbought levels.
Here’s an example utilizing the GBP/USD currency pair.
Currency crosses are the ideal pairs for trading range-bound strategies. Crosses are currency pairs that do not include the USD as one of the currencies.
EUR/CHF is one of the most well-known currency pairs for trading ranges.
The European Union and Switzerland have similar growth rates, which keep the EUR/CHF exchange rate relatively constant.
Another currency pair is AUD/NZD.
Whether you’re trading a pair in a trending or range environment, you should feel confident that you can profit no matter what.
Learn how to identify peaks and bottoms in both trending and range market conditions.
You’ll be able to adopt a specific technique for each if you understand what a trending environment and a range-bound environment are and how they look.