After reviewing the historical price of the commodity is found the investor maps our the "trend lines". This allows the trader to buy the desired commodity at the lower trend line (aka "support" (at the bottom of the channel)) and sells them the upper trend line (aka "resistance" (at the top of the channel)).
Once the pattern is discovered the range-bound trader can make a prediction of the continuation of that pattern; buying on the support; and selling at, or just before, the resistance. The strength, or reliability, of this strategy, depends upon how closely the commodity continues to follow its historical patterns. For example, if the price has moved lower off of the resistance trend line five or four times, it's considered more reliable than if the price only moved off of it two times. So, repetition is key in using this strategy. When sudden growth or decline occurs in the commodity's price, the ranges and trend lines will need to be reestablished in order to continue using the range-bound strategy. In the world of cryptos, this will be a near-daily reconfiguration; thereby making range-bound trading to be a short-term affair.
Most traders place stop-loss points (automatic sale of the commodity in order to avoid dramatic losses) just above the upper and lower trend lines. So, if you purchase a crypto, or other commodities, at $ 10 k; with a stop loss of $ 9 k; you are limited to a 10 % loss of investment. To make right and fast decisions you could also use:
In short; "range-bound" trading is a simple matter of learning the history of the prices in the commodity, or crypto, in which you want to invest. Once the patterns are isolated, you'll soon see the buy/sell strategy building itself.
Good luck in your investments; Happy HODLing!!!
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