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How to become a better cryptocurrency trader using trading ranges
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The best cryptocurrency traders know that price isn’t always going up 📈 or down 📉. In fact, quite often price is moving within a trading range.
What is a trading range?
A trading range is an area on a chart within which price moves for an extended period of time.
In the picture above you can see two instances of price "ranging", staying within the larger trading range.
Drawing trading ranges is a skill you can develop over time. Some traders prefer to draw ranges with the boundaries having as many candlestick touches as possible, while others use the peak of the stronger movement, followed by the peak of the response in the opposite direction.
Draw ranges as you see them and watch how price interacts with the key levels. Over time you’ll know the best way to draw them without thinking about it.
You can learn more about drawing trendlines here.
Profiting with trading ranges
Some traders like to buy near the bottom of longer trading ranges and simply sell at the top. If you can identify a strong trading range, it can be a great way to make some gains.
In a trading range like the one above, you are able to identify high demand around the bottom and larger supply near the top. A trader could have identified this range at point A and waited to buy towards the bottom at point B, which would have netted a nice profit.
However, not all ranges are have many touches of the top and bottom, so this isn’t always possible. In many cases, trading ranges matter most when key levels are being tested.
Trading range equilibrium
The midpoint of a trading range, referred to as the equilibrium (EQ), is often a key area to watch for price action.
If we look at the lower left trading range in the image above, the EQ acted as support many times before the trading range broke.
Be sure to watch how price interacts with the EQ in your ranges. Many times it functions as a support and resistance level on longer time frames.
What most traders are waiting for is a trading range breaking. It’s much like when a trend breaks, because price breaks out from a long term sideways movement area.
Like with any other breakout, you need to use volume to properly assess whether a breakout is real or not.
If you can spot a real trading range break, either up or down, it’s a great chance to profit. The break of a trading range is essentially the break of a key support or resistance level. When it happens, there is usually expected to be a large move accompanying the break, with strong volume too.