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Coach's Playbook Posted by Team Topstep January 12, 2022

Range Trading Strategies

One of the great advantages of range trading is that your risk is predefined for you. If you’re playing it by the book, meaning you’re fading the extremes of the range channel, then you can tell where you’re getting in, where you’re taking profits, and where you’re placing your stops. These areas should be relatively obvious to spot with a simple glance at your chart. This is the value of knowing when a market is in a period of consolidation and having a range trading strategy in your library of setups.

This week, the Topstep coaches are talking about how to spot a ranging market and some best practices to capitalize on them when day trading.

Funded Trader Shoutout

Brace yourself, we’ve got a big one his week! Meet Joseph D., a Topstep funded trader who scored big trading the E-Mini Nasdaq-100 futures (NQ). If you were paying attention last week, we mentioned how the NQ has been range-bound since November, and since then, it has been hovering around the lower end of the range. It’s actually one of the reasons we stuck to the topic this week.

It would certainly appear that Joseph was listening, because it’s no easy feat to amass $8,800 in a single trading day! The Topstep coaches have some valuable insight to share in this week’s plabook. Listen to what they have to say and you might find your name here next week!

Range Trading Strategies

We’ve talked about this topic in previous playbook videos and we’re revisiting it now because we feel it’s important information for you to have, and also because of the current state of a handful of popular markets. That said, we’ll keep this as simple and palatable as possible for you. . 

There are only three possible directions for a market to be trending; up, down, or sideways. When a market is range-bound, that means it’s in a period of consolidation and is moving sideways in a clearly defined channel. Ranges can occur on any timeframe, and typically, the best trade setups will appear on a longer timeframe chart.

Since the market is in consolidation, it’s not yet clear whether the underlying trend of the market will continue or reverse, which makes it possible to play the range from either side (long and short). The simplest strategy is to fade the extreme ends of the range channel and place a stop where a breakout would be confirmed.

Obviously, you can design your own strategy to be as simple or complex as you like. Other variables to consider would be volume, open interest, and your appetite for risk. The bottom line is, there’s a lot of opportunity when markets are moving sideways. If you can stay disciplined and stick to your plan, you might find range trading just as profitable as catching a big ripper!