Range versus trend trading, which is best for you? (2024)

FAQs

Is it better to follow trends or ranging markets? ›

For example, patient traders are better suited to trend trading, while range trading is suited to traders who prefer to trade more often. Ultimately, the choice between range trading and trend trading will depend on a trader's individual preferences and their analysis of the current market conditions.

As a trader, you have probably heard the old adage that it is best to "trade with the trend." The trend, say all the pundits, is your friend. This is sage advice as long as you know and can accept that the trend can end. And then the trend is not your friend.

You won't earn as high of returns as you would with day trading, long-term trading, or other strategies. That being said, range traders do earn smaller, more predictable profits by buying at the lower end of the range (support) and selling at the upper end (resistance).

Among the different types of trade, long-term trading is the safest strategy. It suits most conservative investors who do not mind buying and holding stocks for years.

The idea behind countertrend strategy is the belief that trends would experience reversals and corrections at a point no matter how dominant the direction is. Here, you bet against the current tide, anticipating a reversal or pull back for profit.

Trend-following strategies also tend to exhibit negative downside correlation to equity markets, providing the potential to perform well during periods of sustained stress in global equity markets. At any point in time, however, correlations may be positive or negative, including during crisis conditions.

Trend trading can be a profitable strategy, but it is important to remember that there is no guarantee of success. Trend traders need to be patient and disciplined, and they need to be prepared to take losses as well as profits.

Trading exit strategies

The simplest is to place a stop loss at the point when it has become clear that your trade has failed – for example, just below a previous level of support or resistance if you're using the breakout method we outlined in the previous lesson.

The opening period (9:30 a.m. to 10:30 a.m. Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.

The simplest approach to a range trading strategy is to base it solely on identifying support and resistance levels on a price chart and then using them to decide when to open positions. This straightforward technique is especially popular for beginners or those looking to try new forms of market analysis.

What is the best time frame for range trading? ›

As a general rule, traders use a ratio of 1:4 or 1:6 when performing multiple timeframe analysis, where a four- or six-hour chart is used as the longer timeframe, and a one-hour chart is used as the lower timeframe.

Some of the best volume indicators to use when trading range-bound markets include On Balance Volume (OBV), Volume Price Trend (VPT), Money Flow Index (MFI), Accumulation/Distribution, and Negative Volume Index (NVI).

The defining feature of day trading is that traders do not hold positions overnight; instead, they seek to profit from short-term price movements occurring during the trading session.It can be considered one of the most profitable trading methods available to investors.

Of the different types of trading, long-term trading is the safest. This trading type suits conservative investors more than aggressive ones.

The takeaway is that combining both trend and value can help investors to achieve good market returns with substantially lower losses. It might even beat market returns if the strategy is implemented well and the market environment is cooperative.

Market trend analysis is an essential part of business operations. Regularly identifying and analyzing these trends helps the business stay efficient and competitive, focus on the direction it needs to go in, and protect and improve its bottom line.

Weller explained that humans crave a sense of community and connection. “We're social creatures. We want to be able to relate to other people,” she said. Trends are an easy way to get that feeling of connection without taking too many risks.