Trading Ranges…. Summary…
I hope you all are doing well with trading and also with your life. 🙂 In the last article, I have explained about acceptance, non-acceptance and rejection, which are the basic concepts for trading ranges. I suggest you go through it once again in detail as there is nothing you can do with ranges if you don’t know when the price is accepted and when it is rejected from a level.
Let me give some bullet points before going into the meat of this article.
Make sure you can identify clear range boundaries.
How? You already know that. Four pivots within a swing(preferably impulsive swing) in TTF chart.
The poor market always shows what you wanna see. If you want to see a range in it, it will give a feeling that it is in a range and can immediately show boundaries which you will realize that you were wrong only after taking a loss fading the move at that boundary. If you want to see a trend, it will show you a trend. If you don’t trust me, just question your trading journal. How many times you said to yourself that it’s a range for me and market will reverse here and then market gave a nice BOF of that level, which ended up as a loss? How many times did you say to yourself that it is trending and finally you see a range after the fact?
So whenever you hear something that has “for me” in it in your head, understand that you are screwing up. The market doesn’t provide information for you or for any other individual. It’s just a stream of information that is same for everyone.
Why I am emphasizing so much on this? Because it’s good to have a rule-based approach while defining the trend structure. I do and I follow it every single day. Let’s look at the following images to understand what I am trying to say.
The same price action giving totally opposite biases. The first scenario is in accordance with the rule I follow (Thanks to Lance and YTC). The second scenario is in accordance with nothing. 😀 Just looking at the chart and price reaction at a level then calling it a range boundary. Let’s see how we could have tackled it in both the scenarios adding some more data.
Now I don’t need to say which one is the better way and which one would have screwed up your psyche. Sure, I have cherry-picked the example to explain the concept. In fact, the thought of mentioning this point in an article about ranges came into my mind after looking at the PA in the above charts. In both the scenarios, the identification of the trend structure is correct, which is ranging after the four pivot confirmation. The identification of setups, acceptance and non-acceptance is correct in both the scenarios as well. But the only difference is the way we drew the levels and that gave us totally different biases. If that goes wrong, everything that follows goes wrong. Unfortunately, identification of the range boundaries is the first step. No wonder why most people suck at trading ranges. 😀
Decide to trade only at the range boundaries unless an obvious intra range trend pops out of the chart.
I have mentioned this point a million times in this blog. Repeat the following sentence after me.
“The movement from one range boundary to the other boundary happens by trapping those traders who try to take intra range trades.”
People who are desperate to be in a trade fades corrective moves against an impulsive at levels within the range boundaries and mess up their psyche. Don’t be in that group. The only time I look at intra range price action is when the range is too wide as there might be a probability of forming an intra range trend like the following. These kind of wide ranges are so rare.
In all the remaining cases, I just set price alerts at the boundaries and track other markets. No point in watching the charts when there is nothing you can do in accordance with your trade plan.
Be flexible to go to step one to define the trend structure when the market is taking too much time without giving you a setup.
Here the word “too much” is a bit subjective and I leave it to you to decide what’s too much. Sometimes, after confirmation of a range, the market doesn’t reach any of the boundaries but defines a clear trend (cycle method) within the boundaries. In those cases, dump the boundaries, go back to step 1, define the new trend structure (trend or a smaller range with new boundaries) and follow the rest of the plan. Look at the following image for example.
Deal with swings in ranges, not with candlesticks while managing the trades.
What does it mean? In trends, while managing the trades, you look at individual candlestick’s behaviour asking some questions like, how this candle behaved after breaking previous candle(s) high or low? How did it close with respect to the highs and lows of previous candles? Is this candle strong or weak in the direction of my bias? etc. etc.
When it comes to ranges, just deal with the behaviour of swings in stead of candles. How market behaved after breaking previous swing high or swing low? Price got accepted or not after breaking those swing lows or swing highs? Is the current swing strong in the direction of my bias or not? etc. etc.
Don’t worry much about individual candles as it freaks you out.
Just imagine yourself managing the following trade reading each and every single candle till it reached the target.
In hindsight one can say that it was a nice hold. But in reality, I just dealt with swings there, not with candles to avoid premature exits. Strength of the swings, the behavior of price after breaking swing highs were the only things I was interested, not on how the individual candles close and stuff.
Finally, if your stats prove that you mess up in ranging environments, move back to SIM when you sense a range and practice.
These are the 5 important points to keep in mind before considering trading a range. Now let’s talk about trading the ranges.
The only thing that is needed in technical per se to trade ranging environment is a solid understanding of acceptance, non-acceptance and rejection after breaking a boundary. Yes. That’s totally it.
When the market breaks a range boundary and price gets accepted after the breakout, look for a BPB when the pullback is corrective, or failure of BOF when the pullback is impulsive. Look at the following examples.
When the market breaks a range boundary and price is not accepted after the breakout,
a) If the BPB is corrective, take the BPB, manage it aggressively and be alert around the swing high or low after the breakout. Don’t have charts to show this as of now, I will post them in my FB page when I find them.
b) If the BPB is impulsive and the move after BPB in the direction of the breakout is corrective, look for a BOF entry around the swing low or swing high after the breakout.
When there is rejection PA at a boundary, fade the move. But manage aggressively as it’s not a clear BOF.
Well, all these apply when the market breaks the level. What about the test setups?
Honestly, I am a bit scared about test setups in ranges. I take TST entries only when that trade coincides with the trend of the higher timeframe when the market approaches the range boundary with visible weakness. Even then I manage them aggressively, scaling out at levels within the range.
I guess I am not the right person to tell you something about test setups in ranging markets as I am still a learner in that department.
To sum it up all together,
Define the range boundaries properly.
Wait for a breakout of one of those boundaries.
See whether the price is accepted or not accepted after the breakout.
Identify the behaviour of the BPB (Impulsive or corrective) and then plan the trade accordingly.
What I forgot to mention is trading ranges requires an enormous amount of patience. It’s not a joke to sit aside for hours, waiting for the market to reach the range boundary, build a setup to take a trade. Even after taking the trade, managing them loosely is boring. But understand that it is supposed to be boring. We are here to make money, not to have fun and adrenaline rush. 😀