Market ranges

Two kinds of range

A market range is the band of prices a pair moves between over a given stretch of time. Traders read ranges to find buying and selling opportunities off their support and resistance. There are two ranges that matter: the market range and the average daily range.

The market range

A market range is simple: it is a region where price is fluctuating between a support and a resistance, a consolidation, which is accumulation or distribution in progress. You do not want to enter in the middle of a range; it is dangerous. Trade only the edges of the range when you are looking for an entry on any setup.

The average daily range

The average daily range of a pair, a commodity or an index is the average distance between its highest and lowest price within a single trading day. Most traders watch it to gauge volatility and to set realistic profit targets and stop losses. If you are day trading, it is not enough to find confluence in the technicals; you also need to know the average daily range, to avoid reversals, to take profits and to validate the trade.

Gold as the example

Knowing a pair's daily range is a large part of knowing the pair. Say gold's average daily range is 900 to 1,200 pips in the units your broker counts, and during the New York session it has already moved more than 1,000. That is a clue that, unless there is major news, the London session that follows is more likely to retrace or consolidate than to offer a move worth risking money on. Pip sizes on gold differ from broker to broker, so measure the range in the units your own platform shows.

Edge or middle

On the Trade Desk your entries sit on the chart against each day's high and low, so you can see whether you bought at the edge of the range or in the middle of it.