Range Trading by Crypto Satz

Topics:

• How to identify range low and range high
• Trading the range
• Probability
• Conclusion

How to identify range low and range high

A range occurs after an impulsive move, or a trending market. So let’s take a look at how I personally identify the range low, and range high.

There are many ways a chart can look after a certain move. Highs can be swept or unswept, and lows can be swept or unswept. I’m gonna be taking a look at the different possibilities and discuss all of them apart.

1) Right after the impulsive move

After an impulsive move, or a trending market, you always want to take the first low (or high) after the down (or up) move as a range low (or high) and the highest price (or lowest price) after a bounce/rejection as a range high (or low).

Let’s take a look at some live examples.

2) After an impulsive move down (or up) when the first low (or high) made before a bounce/rejection is swept.

When you’re in a situation where the impulse move down (or up) happened, and the first low (or high) made after the move is already swept, you always want to take the first low (or high) as the range low (or high) and not the low that swept the first one. The high (or low) that led to the sweep of the low is the range high (or low). The charts below will make things more clear.

Let’s take a look at some live examples.

3) After an impulsive move down (or up) when the first low (or high) after the down (or up) move is not swept, but the first high (or low) after the bounce/rejection is swept.

In this case, the low (or high) after the impulsive move did not get swept. The first high made after the bounce, or the first low after the rejection did get swept. You always want to take the high or low that got swept as a range high (or low). The charts below will make things more clear.

Let’s take a look at some live examples.

4) Random look anywhere on the chart.

Just another look of a chart that you will see a lot, is the one below. Always take the high that got swept as a range high and the low that got swept as a range low.

5) Some extra rules:

Take highs/lows with the most liquidity above/below them.

Take the highs and lows with the most liquidity/stops above/below them. In the example below, you can see 2 ranges. I’ve seen people use the red one instead of the green one. I’d always prefer green. The high taken as range high for the red range is “insignificant”, meaning there’s not that much liquidity above it. Also the high taken for the green range is the high that led to the sweep of the range low, so we always want to take that high over the one taken for the red range.

Equal highs/lows.

Whenever you see equal highs or lows, that did or did not get swept and you are doubting what range high or low to take, take those. Like I said above, it’s about liquidity. Equal highs/lows mean there’s double the amount of stops above or below the lows so they are significant. Example below.

Take the range that fits the best / look for confluence.

Sometimes a chart can look messy and it can be difficult to choose a range high and range low. It can be just as simple as picking the range that fits the best. Try different possibilities and see where and how price reacts to a certain level. Also, look for confluence. If multiple important levels line up, it’s more likely price will reject or bounce at that level. This confluence can be anything really. An important support, resistance, the weekly open or even an EMA if you use those.

Trading the range

There are many ways to trade a range, so again, these are just the strategies that work for me. We will be taking a look at how to trade the range if the situations discussed in 2 and 3 present themselves, but also at how to trade the mid range. In the situations where you play the range after either range high or range low got swept, you can either enter a trade after the candle is pumping (or dumping) back inside the range, wait for a close back inside the range, or wait for a retest of range high / low before entering. All of these depend on the probability of the trade. If the probability is high, the asset might just run without letting anyone in. While if the probability is lower, you always want to wait for a retest because this highers your risk to reward significantly. What makes the probability of the trade increase will be discussed later. Also, I’m not going to discuss all of these in every single situation because this would make things too messy, but I’ll show some examples below.

If a chart looks pushy (or dumpy), and the probability of the trade is high, you just want to enter when you see you are getting back inside the range, or after a close back inside the range.

When the probability of a trade is lower, and you want to feel safer, enter after a retest of range high/low. This will significantly increase your risk vs reward, and gives you more confirmation.

1) Low swept after down move or high swept after up move

In this first situation, the low has been swept after a down move, or the high has been swept after an up move. This is just a play within the range and is mostly counter trend, so I always wait for a close back inside the range or even for a retest. Stop loss below the lows (or highs), target range high (or low).

2) High swept after down move or low swept after up move.

In this example, price made a low (or high) after a down (or up) move, but didn’t sweep that low (or high) yet. Instead it made a key high (or low) that got swept. This means there’s still a lot of liquidity to the downside (or upside). Enter after you see weakness/strength or wait for a close back inside the range and sell/buy a retest. Stop above the high/low target range low/high.

3) Both high and low swept

This is a classic range play that goes with the trend. In this situation, price came from trending, made a low (or high), and a high (or low), swept the low (or high), and swept the high (or low). This setup is in sync with the trend so has a pretty high probability of playing out. Enter the trade after the high got swept, if you came from a down trend, or when the low got swept if you came from an uptrend. Stops above the high (or low) that swept range high (or low) and target range low (or range high). Targets for this setup can be much higher (or lower) than range high (or range low). Let’s take a look at some charts.

4) Trading the mid range.

Like I already said, the mid range, equilibrium or simply EQ, is used to determine your bias. Above the mid range we say price is bullish, below the mid range, price is bearish. This is the reason, trading the midrange can provide very high probability setups. Whenever lows are swept, highs are unswept and you get a close above the mid range, it’s a safe play to long towards the highs. This setup is high probability but mostly low risk vs reward if you just target range high. That’s why I only trade the midrange for breakout plays.

For example: Price is trending down, made a low, made a high, swept the high, and trades below the mid range, it’s safe to short and target lower liquidity, even below range low. The charts will make things more clear.

Probability

The probability of a trade is the likelihood of a trade being successful. In this part we will take a look at the probability of the different setups, and how to increase the probability of a certain setup using ranges.

The trend

The trend of an asset is obviously very important. A trade that goes with the trend is more likely to play out then a trade against the trend. The setup examples described in 2), 3) and 4) are all setups that go with the trend, so they have a higher probability of playing out then the first one.

Liquidity

As you know (or don’t know), liquidity attracts price. So liquidity can add a lot to the probability of a trade. In the second trade example, there are 2 unswept highs/lows instead of in the first example where there’s only 1. This means the second setup has a higher probability of playing out in terms of liquidity than the first one. Equal highs or lows also are more significant then a single high or low. So if you setup lines up with the direction towards the equal highs/lows it adds significantly to the probability of the trade.

Support and resistance

This imo, is the most important one. All of the above means nothing if you don’t have a view on the overall picture and on the overall support and resistance areas. All of these “sweeps” I talk about should always be seen in confluence with support and resistance. A sweep of the highs into supply is way more probable to get rejected then a sweep of the highs into small to no resistance.