A Complete Guide to the Futures Market, 2nd Edition

CHAPTER 7

Trading Ranges

There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time.

—Edwin Lefèvre

■ Trading Ranges: Trading Considerations

A trading range is a horizontal corridor that contains price fluctuations for an extended period. Generally speaking, markets tend to spend most of their time in trading ranges. Unfortunately, however, trading ranges are very difficult to trade profitably. In fact, most technical traders will probably find that the best strategy they can employ for trading ranges is to minimize their participation in such markets—a procedure that is easier said than done.

Although there are methodologies that can be profitable in trading ranges, the problem is that these same approaches are disastrous for trending markets, and while trading ranges are easily identifiable for the past, they are nearly impossible to predict. Also, it should be noted that most chart patterns (e.g., flags, pennants) are relatively meaningless if they occur within a trading range. (Chart patterns are discussed in Chapter 9.)

Trading ranges can often last for years. For example, the silver market remained in a trading range for much of the 1990s (see Figure 7.1). Figures 7.2, 7.3 and 7.4 show a multiyear crude oil trading range represented in continuous futures, nearest futures, and the December 2014 contract. These three charts illustrate that the trading range boundaries and periods ...