Inside a Trading Range Again.

The Nifty is back inside a trading range. A rally that started from 4640 is now over, with the Index moving into a fairly well defined range. Today’s decline saw the Index define the range boundaries support around 4900 and resistance around 5100. This is a fairly wide range almost 200 points.

If the Nifty were to move below 4900, the range will breakdown with an initial target of 4700. A second possibility is for the Index to remain within 4900 and 5000 for a few days.

How do I trade this? Trading ranges are not easy to trade. Overnight positions can often result in losses since the market may open with gaps which go against the trader. The reason for such adverse gaps lie inside the trading range itself. Going with momentum, traders will often sell at levels which are support for the range. The support holds, hence a gap open which goes against the trader.

My own sense is to take day trades wherever possible and avoid carrying positions. All ranges will eventually breakout or breakdown. To take advantage of this imminent thrust, I often buy straddles when prices are inside the range.