Range

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DEFINITION of 'Range'

The difference between the low and high prices for a security or index over a specific time period. Range defines the price spread for a defined period, such as a day or year, and indicates the security’s price volatility. The more volatile the security or index, the wider the range. The range expands over greater time periods; a security’s daily range will generally be smaller than its 52-week range, which in turn will be tighter than its five-year or 10-year range. Technical analysts closely follow ranges since they are very useful in pinpointing entry and exit points for trades.

Also known as price range or trading range.

BREAKING DOWN 'Range'

The range depends on the type of security; and for a stock, the sector in which it operates. For example, the range for fixed-income instruments is much tighter than that for commodities and equities, which are more volatile in price. Even for fixed-income instruments, a Treasury bond or government security will typically have a smaller trading range than a junk bond or convertible security.

Myriad factors affect a security’s price, and hence its range. Macroeconomic factors such as the economic cycle and interest rates have a very significant bearing on the price of securities over lengthy time periods. A big recession, for instance, can dramatically widen the price range for most equities as they plunge in price. Most technology stocks had very wide price ranges from 1998 to 2002, as they soared to lofty levels in the first half of that period and then slumped – many to single-digit prices – in the aftermath of the dot-com bust. Similarly, the 2008-09 global bear market greatly widened the trading range for equities due to the broad correction that saw most indices plunge over 50% in price.

Since price volatility is equivalent to risk, a security’s trading range is a good indicator of risk. A conservative investor will prefer a security with smaller price fluctuations compared with a security that is susceptible to big gyrations. Such an investor may prefer to invest in more stable sectors like utilities, health care and telecommunications, rather than in more cyclical (or high-beta) sectors like financials, technology and commodities. Generally speaking, high-beta sectors may have wider ranges than low-beta sectors.

A security’s range can effectively highlight support and resistance levels. If the bottom of a stock’s range has been around $10 on a number of occasions spanning many months or years, then the $10 region would be considered an area of strong support. If the stock breaks below that level (especially on heavy volume), it would be construed as a very bearish signal. Conversely, a breakout above a level that has marked the top of the range on numerous occasions would be considered as a breach of resistance and would be a bullish signal.

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