A Range-Bound Market describes a trading environment where an asset’s price fluctuates within a defined upper and lower price level for an extended period, without a clear directional trend. In crypto, these periods often follow significant volatility or precede a breakout, representing a temporary equilibrium between supply and demand.
Mechanism
The underlying dynamics of a range-bound market are characterized by a temporary equilibrium between buying and selling pressures, where neither force is strong enough to drive the price beyond established support and resistance levels. Order books typically show increased liquidity around these boundaries, with price action reversing upon reaching them. Automated systems detect these levels to inform trading decisions.
Methodology
Traders employ range-bound strategies, such as selling options or utilizing grid trading bots, to capitalize on predictable price oscillations within the defined limits. This strategic approach involves identifying and confirming support and resistance levels, then executing trades that profit from mean reversion. Risk management focuses on setting stop-loss orders outside the range to mitigate losses from a potential market breakout.
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