Unveiling Crypto Market Insights: Ranges

GM fellow crypto enthusiasts!

Today we are going to discuss how to identify and trade ranges.

How to identify a trading range?
A trading range is formed when an asset trades between consistent high and low prices for a period of time. The top of the trading range often provides price resistance, where as the bottom of the trading range typically offers price support. We can also watch out for daily, weekly or monthly ranges, which are formed between the high and the low of the observed period.

How to approach trading in range bound environments?
Range-bound trading is a trading strategy that seeks to identify and capitalize on asset trading in price channels. After identifying major support and resistance levels, a trader can buy an asset at the lower trendline support (bottom of the channel) and sell it at the upper trendline resistance (top of the channel).

Support and Resistance
If the price action oscillates within a trading range, traders can watch out for buying opportunities when the price approaches its support and sell when it reaches the level of resistance. Technical indicators, oscillators in particular, such as the relative strength index (RSI), stochastic oscillator, and the commodity channel index (CCI), can be used to confirm overbought/oversold conditions when price oscillates within a trading range.

Breakouts and Breakdowns
Traders can be cautious of the breakouts when price approaches top/bottom of the trading range. To confirm the move is valid, traders can use other indicators, such as volume and price action. Analyzing trends in volume can help you validate patterns to determine if the timing might be right to use a range trading strategy. Technical analysts tend to believe that volume precedes price; to confirm any trend, volume should increase in the direction of the trend.

Let's focus on ETH/USD chart
We have identified a range that formed between the high and low set in the second half of August 2023. The price action remained range bound since formation of the range. We observed that price tested the support and resistance but failed to close above/below the range extremes.

Where do you see the price action in the following months? Do you think ETH will trade below, above or within the trading range at the year end?

Let us know in the comments

This post does not offer personal investment advice or recommendations. Bitstamp accepts no responsibility for any damage or loss from the utilization of the information presented here.

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