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It is always more difficult to swing trade ranges as compared to swing trading trends. The reason being ranges are more difficult to identify as compared to trends. A trend is very easy to spot on the chart. The security price action will be rising steadily of falling steadily. Identifying ranges reguires the use of technical indicators known as oscillators. These oscillators are also known as non trending indicators.So if you want to swing trade ranges, you can use the ADX (Average Directional Index) oscillator. If its value is less than 20, it means that the security is ranging. An ADX value of more than 20 means that the security is not ranging and is perhaps trending! A value of more than 30 is a sure indication that the security is trending.Now before range trading make sure that the range is wide enough for you to make meaningful profits. Suppose the stock price is oscillating between the price of $55 and $60.
This range of just $5 is not wide enough for you to cover your trading costs in the shape of broker commissions. However, if the range is between $5 and $10, it is wide enough for you to cover your trading cost as well as make profit.Now before range trading you need to determine the strength of the range. The strength of the range depends on time. The longer the trading range has been in force, the more chances are that it will continue.
The more the security price touches the support or resistance, the higher chances are that these support and resistance will continue.This is very important that the support and resistance levels are almost horizontal. If these lines are not horizontal rather they are slanting up or down, then this is not a geniune range. A true and geniune range needs to have almost horizontal support and resistance levels between which the price action bounces back and forth.How to enter a range? Use the stochastic.
When the stochastic crosses the moving average from an oversold level, it is a buy signal. Place the stop loss slightly below the support or the price at which you entered the trade. Your take profit is almost the same as the range. In the above example, we had used $5 as the range. This should be your take profit. So when range trading, you buy at the support and sell at the resistance. This way, you can make nice profit!