What is a Ranging Market?
Updated: March 28, 2012 at 4:51 AM
Ranging Market Definition. A Ranging Market a market where the price is moving back and forth between a higher price and a lower price. It is commonly referred to as range bound, choppy, sideways or flat market. The higher prices form a resistance line that prevent the price from rising further, and the lower support line prevents further downward movement. The range of prices witnessed during a ranging market may be small or large, but if a smaller range exists, the market is said to be in chop or moving sideways. The opposite of a ranging market is a trending market. In a trending market, the price is moving in a single direction, either up or down, but not sideways. There may be several small price gyrations, but nothing large enough to impact the general direction of the trend. Trends can last for minutes or hours, or even weeks or months for longer-term trends. Forex traders often employ what are known as range-bound or channel trading strategies to take advantage of ranging conditions. Oscillators typically are ineffective in ranging markets, but the forex trader focuses on the resistance and support lines for his entry and exit points. He will conduct channel trades as long as the sideways motion permits and be satisfied with small scalping gains. The downside of this strategy is that when the currency breaks out of this sideways motion, it generally moves heavily to the downside. A forex trader will normally purchase a put option or secure a stop-loss order to protect against excessive loss.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.