The trading range or lateral trend, is an area of the graph delimited at the bottom by a support line and at the top by a resistance line. If you look at a long-term chart, you can see that price movements alternate periods of trend, bullish or bearish, with others in which they fluctuate in a more or less large area.
Range means the range of variation between the minimum and maximum of an asset, which can be daily, weekly or monthly. The graph shows a lack of price direction and leads to an unclear situation. This type of price progression is called a trading range or lateral trend.
For those who are about to enter the world of online trading, but also for those who already work in this sector, it is essential to know some essential tools to have a proper management and to assess all the risks of the various investments. Just to understand when it is better to sell or buy and then close the positions, comes to the aid of the stop loss, which is an order that suggests the customer the right time to do so, thus limiting any loss of money.
The financial markets (as well as the international exchanges) are extremely fickle and uncertain and the stop loss allows at least to define at the start a maximum ceiling of loss, beyond which you cannot go, to protect the broker from unpleasant surprises.
Experienced traders who make daily investments through online trading know that in addition to the constant study of various applicable strategies, instruments and moving averages, a good deal of insight is also required.
The stop loss has exactly the task to set a predetermined limit to this possible loss, allowing the trader to choose independently and a priori the maximum amount that is willing to lose (remember that there is no guaranteed result in what we are explaining).
For this tool to be effective and protect us from major losses, it is important to understand thoroughly and precisely how it should be positioned during the investment operation.
The trader is absolutely autonomous in the choice of the position, that is it does not exist a correct one or less, rather it can be referred to a basic indication according to which it is preferable to put it to short distance from the level of entry, so that the loss will be close to that amount rather than to that of exit (gain).
Stop losses can be of different types, it is up to the individual broker to understand which is the most in line with their needs, the one that allows them to have a kind of peace of mind during the operation:
The main objective of those who trade online is to earn money, avoiding losing money. Therefore, traders are always studying and experimenting on new platforms, strategies and tools. As we have seen, stop loss is what ultimately protects them from any loss of money, protecting their capital within certain limits. However, there are some rules to consider when using this tool, both for experienced traders and beginners.
First, it should be remembered that its potion must be defined with precision and extreme calm before entering the market, never after. A careful evaluation and the necessary calculations, made with a cold mind, are the sine qua non condition for the stop loss to be effective, protecting us from huge losses.
In the same way it must be said that once positioned it must never be removed or moved, it could compromise the calculation of the risk that has been done a priori and it could be useless. Every trader then has the "obligation" to ask himself exactly how much he wants to risk in every trade or throughout the day, based on the answers he will know how to set the stop loss without going beyond the limit.
Finally, perhaps the main rule: if in the middle of the day we have already closed several trades because the stop loss has come into play and we have therefore reached the maximum threshold of loss established, we soften the blow and do not insist further for that day, even if we were to see a favorable market trend and the temptation to reinvest is so much.
Lack of price direction means that, prices stand still, do not rise or fall, there are no fluctuations on the chart, orders accumulate, and at this point stop loss intervention, i.e. the price level at which a loss-making position is liquidated, would become crucial.The choice to apply stop-loss arises from the fact that a transaction open under certain assumptions is not going to be budgeted and therefore it is preferred to assume a limited loss before it becomes larger. A stop loss is therefore the maximum level of loss that you are willing to accept on a given position. When determining a congestion of orders, that is when the trading range occurs, you do not have to make operations, operate only when the lateral trend is finished.If the trading range lasts longer than the order congestion, in the chart, between the bar 21 and the bar 29 you see a break, which however is normally false. If, on the other hand, it exceeds bar 29 and weakens, the breakage is reinforced and can be profitable. Conversely, if the lateral course becomes wider, the rupture will weaken.
In the graph of distinguishes with the graphic appearance of a rectangle. The rectangle is nothing more than a lateral trend in which prices fluctuate between a level of support and one of resistance. It is important to clarify two definitions just encountered and to add a third variant.
Rectangle: Limited amplitude oscillation within two levels, or zones, that act as support or resistance.
The trading range is a strategy to observe, if prices are channeled into a range without taking any direction, you understand, looking at the graph, when prices are heading to support levels it is time to buy and sell when prices go to resistance levels. It offers advantages in identifying risk parameters and understanding when to buy. The trading range allows you to observe distinct areas of support and resistance.
If you are looking for an alternative to equities, you can think of trading in bonds. But what does it mean and, above all, how can we make money out of bonds without risking too much? To answer this question, continue to follow our guide which will explain in a simple and detailed way how a bond trader operates.
We have seen how, in the field of technical analysis, it is also necessary to consider in depth the psychological aspect that in fact can influence the market even in a more than decisive way.
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