| Updated: September 12, 2025Overview of trading ranges
This lesson will cover the following
- Trading ranges suggest a struggle for dominance
- Trading ranges are more often continuation patterns
Fighting for dominance
If a chart comprises swings up and down, it means that neither side is able to overpower the other; thus, control over market movement alternates. Such a situation is best described as a trading range.
If the sideways movement encompasses about 10-20 bars, it indicates a tight balance between bulls and bears. If a trader attempts to trade any brief movement to the upside as a breakout, it can be a costly decision, because sellers usually go short aggressively on such moves, while new buyers look to exit their positions rapidly. This explains the large upper wicks of the bars.
The same applies to any brief movement to the downside. Buyers usually go long aggressively on these moves, and new sellers look to close their positions. This explains the large lower wicks of the bars.
Trading ranges are more often continuation patterns
All trading ranges are considered continuation patterns, as they more often than not produce breakouts in the direction of the preceding trend. Another notable point is that ranges tend to break out away from the exponential moving average (EMA). If they form below the EMA, they may be breached to the downside. If they form above it, they are likely to be breached to the upside. This is especially true when trading ranges appear close to the moving average. When they form some distance away from it, prices may test the EMA.
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If an upswing stalls for a while within a trading range, there is a very good chance that the final breakout will occur to the upside. However, it is worth noting that this final breakout may at times be preceded by several failed attempts from both the upper and lower boundaries of the range. It is also possible for the price to break out in a direction counter to the trend.
If a trading range drags on for too long, it is reasonable to expect that it may lead to a reversal. All these situations add to the overall uncertainty and urge traders to exercise caution when making decisions. This includes examining higher time frame charts, because trading ranges lasting for several hours with large, hard-to-read swings on a 5-minute chart often appear as small, easy-to-read ranges on 30-minute or 1-hour charts.