Trading Ranges

Range Trading — Four Rules That Define the Strategy

A range-bound market is not a no-trade zone — it is a well-defined structure with predictable bounce points. The key is knowing the four rules that govern range trading: trade first tests, avoid the midpoint chop zone, apply the Rule of Fives, and use swing points as invalidation.

• Range Low = buyers / demand zone / support. Range High = sellers / supply zone / resistance
• Midpoint = Fibonacci 50% between Range High and Low — the chop zone to avoid
• Rule 1 — Trade First Tests: first touch of Range Low or High = highest hit rate; freshest orders present
• Rule 2 — Midpoint = Chop Zone: large unpredictable moves happen at mid; avoid setting up trades here
• Rule 3 — Rule of Fives: 5th touch of Range High or Low = likely exhaustion; breakout/breakdown expected
• Rule 4 — Swing Points = Invalidation: use swing highs (for shorts) and swing lows (for longs) as stop reference

The Four Range Rules in Practice

Each of the four range trading rules addresses a specific risk that destroys range traders. The first test rule ensures you enter at peak probability. The midpoint rule keeps you out of the chaotic centre. The Rule of Fives prevents you from shorting an exhausted resistance. Swing point invalidation gives you a stop that survives normal wicks.

• Rule 1 — First Tests: mark each touch with a number (1, 2, 3...); first touch has the most orders; each subsequent touch depletes orders; beyond touch 3 or 4, the hit rate drops materially
• Rule 2 — Midpoint: exact midpoint from Fib 50%; use only to gauge trade progress — above mid = likely heading to Range High; below mid = likely heading to Range Low; never trade setups here
• Rule 3 — Rule of Fives: when Range High has been touched 4 times and is approached for the 5th — do not short; prepare for a breakout above; same for Range Low
• Rule 4 — Swing Points: add a buffer around swing lows (for long stops) and swing highs (for short stops); the buffer is essential — wicks regularly probe just beyond swing points
• Scalp Long: enter at Range Low → stop below swing low with buffer → target Range High (3:1 to 4:1 RRR)
• Scalp Short: enter at Range High → stop above swing high with buffer → target Range Low (3:1 to 4:1 RRR)
• Volume confirms: high buy volume on Range Low touch = buyers stepping in; high sell volume on Range High = sellers defending

A range has been clearly defined. Price has tested the Range High four times, bouncing off each time, and is now approaching the Range High for a fifth time. What does the Rule of Fives say to do?

• Do NOT short the 5th touch — the Rule of Fives signals likely exhaustion and potential breakout above Range High; look to buy the breakout instead
• Short aggressively at the 5th touch — repeated resistance tests confirm the zone is very strong; sellers will step in again at the same level
• The 5th touch has no special significance — trade it the same way as any other Range High touch using the standard entry strategy

Answer it (with a live chart) in the interactive lesson.