Range-Bound Trading

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DEFINITION of 'Range-Bound Trading'

A trading strategy that identifies stocks trading in channels. By finding major support and resistance levels with technical analysis, a trend trader buys stocks at the lower level of support (bottom of the channel) and sells them near resistance (top of the channel).

INVESTOPEDIA EXPLAINS 'Range-Bound Trading'

The trader may repeat the process of buying at support and selling at resistance many times until the stock breaks out of the channel. The upper boundary of the channel is shown by a trendline that connects the points representing a stock's highs over a given time period. The lower boundary of the channel is identified by connecting the points representing a stock's lows. The downside of this strategy is that when a stock breaks out of the channel, it usually experiences a large price movement in the direction of the breakout. If the breakout direction is not favorable for the trader's position, he or she could lose badly.

RELATED TERMS
  1. Range

    A stock's low and high prices for a particular trading period, ...
  2. Opening Range

    The highest and lowest prices of a security during the first ...
  3. Zone Of Support

    A price zone in which a stock finds support and begins to trade ...
  4. Zone Of Resistance

    A price zone in which a stock finds resistance and begins to ...
  5. Amplitude

    The difference in price from the midpoint of a trough to the ...
  6. Channel

    1. The system of intermediaries between the producers, suppliers, ...
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