TRADING RANGE Meaning and
Definition
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A trading range refers to the price levels at which a financial instrument, such as a stock or commodity, has been trading within a specific period of time. It represents the range between the highest and lowest prices reached by the instrument during that period. The trading range is typically identified by drawing horizontal lines across the chart to connect the highs and lows.
Traders and investors closely monitor trading ranges as they provide valuable insights into potential future price movements. They offer key information regarding areas of support and resistance, which are important technical levels indicating potential buying or selling pressure. The top of the trading range is often considered a resistance level, where the instrument may struggle to rise above, while the bottom acts as a support level where it may face difficulty falling below.
Understanding the trading range assists market participants in making informed decisions. Traders can employ various strategies within a trading range, such as buying near the support level and selling near the resistance level. Additionally, a breakout from a well-defined trading range can indicate a potential trend reversal or continuation, prompting traders to adjust their positions accordingly.
Overall, a trading range provides a visual representation of the price range within which an instrument has been trading, enabling traders to identify important levels of support and resistance and make informed trading decisions based on these observations.
Etymology of TRADING RANGE
The word "trading" comes from the Middle English word "traden", which is derived from the Old English word "tredan" and the Old Norse word "troða", both meaning "to tread" or "to step on". Originally, it referred to the act of treading or stepping on something, but later evolved to denote commercial transactions involving the exchange of goods or services.
The word "range" comes from the Old French word "range", meaning "row" or "line". It is derived from the Old French verb "rengier", which means "to arrange in a row". The term "range" has been used in various contexts to describe a line or series of things that are in a particular order or sequence.
When combined, the term "trading range" refers to the range or zone within which a financial instrument, such as a stock or commodity, trades over a specific period.
