Most investors tend to assume that it is not possible book profits when the price changes become less frequent.
However, professional investors tend to prefer sideways market movement to use range-bound strategies and increase their earning potential. This article covers range-bound trading and its benefits for investors.
What is Range-Bound Trading?
Range-bound trading is a set of investing strategies that are used to make profits when the market is moving in sideways. It means that the investors are able to make profits even when the price of an underlying asset is moving within the high and low price range.
It is also a type of trading that allows the investors to work out the best mode of trading when the price is moving within the support and resistance price ranges. It usually entails placing orders in succession for a given asset based on its support and resistance level movement.
What is a Sideways Market Movement?
When the prices of a given cryptocurrency is not registering visible highs or lows but continues to trade in a consolidate range it is called sideways movement. When an asset such as a cryptocurrency is moving in a sideways range it moves in horizontal range between the support and resistance level.
Professional investors retain that the price fluctuations for sideways movement become more predictable and less volatile. The best indicators to employ in this case are Average True Range (ATR) and High Low Bands (HLB) for incorporating range-bound strategies.
How does Range-Bound Trading Work?
The first job for the investor is to identify the correct support and resistance level for an asset that is moving sideways. The support level is the lowest price range while resistance is the highest price threshold for a sideways movement bracket.
If the investors are able to predict and time the support level with perfect accuracy they can purchase the asset at a good price.
In the same manner, if they are able to predict the resistance movement with good accuracy they will be able to cash-in their position to earn considerable profits.
Most Popular Range-Bound Trading Strategies
Here are some of the most popular range-bound trading strategies:
Spot trading is done with investors’ directly purchasing or selling cryptocurrencies from the main market.
Investors can implement buy or sell orders using technical indicators to identify the potential sideway range for the cryptocurrencies. The investors can place sell order near the resistance and buy order near the support.
Breakouts and Breakdowns
Breakouts are the price points where the value of an assets starts to rise and breakdowns is the reciprocal price range. Investors can depend on market fundamentals and technical analysis to identify these visible price trajectories and place their trading bets in accordance.
Swing trading is also a type of range-bound trading strategy. In this type of trading, the investors place automated stop-loss orders to cash-out before price of a given crypto falls below a required range.
At the same time, the investors can also place a cash-out order at resistance level or highest possible price range for a given time to earn profits according to their predetermined goals.
Earning Yield with Range-Bound Trading Strategy
There are some trading platforms like Binance that allow investors to earn yield with Range-bound trading. There are two outcomes for the investors who participate in this program. The investors have to subscribe to this option during the periods when market is trading in a sideways manner.
In the first scenario, the investors are able to earn yield based on APR or Annual Percentage Rate in accordance to the accruing date. The price of the given asset must remain within the given sideways range for the investors to qualify for the yield.
In case, the price of the given cryptocurrency falls above or below the sideways range, they will get back less than their initial deposit amount.
Range-bound trading strategies are a great way to generate profits when the market is moving in sideways direction. However, it entails considerable risks as it is not possible to predict the future price of a given cryptocurrency even after conducting detail market analysis.