Thread by @corymitc

When ranges form and price starts chopping around, that's when most people lose money.

Here's how to avoid getting chopped up, profit if the range is big enough, and still participate in the breakout.

A quick visual thread on "range rules."
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My #daytrading "range rules" generate great returns (combined with my entry signals) and save me from unnecessary losses almost every day.

There are two concepts:
1. Room
2. Inside or Outside Swing

Both are important for navigating ranges or choppy trading...

1. ROOM means: if price is in a range & I get a trade signal, my target must be within the range (or barely outside) & STILL provide a good reward:risk of at least 2:1 or greater.

Notice how my targets are within the range. There's "room" within the range to hit my target.

While a range will eventually break, I don’t know when that will happen.

I don’t want to keep taking trades HOPING for a big breakout.

This can result in multiple losses before the range breaks.

And when it does break, it could be FALSE. Which brings us to the next rule...

2.Inside/Outside Swing means: when the price moves outside the range, wait for the next pullback.

It tells me which direction I'm going. By waiting for the pullback after a breakout, I avoid getting chopped up on false breakouts and can still get in on legitimate ones...

You already saw 2 INSIDE pullbacks on the chart above. Here is that chart again.

1st trade, price drops below the range, but then moves back into it. The pullback stays INSIDE the range, and the price starts moving up again. BUY as shown.

2nd trade, the price breaks above the range but fails. It drops back into the range and the next pullback stays INSIDE the range and then price starts dropping again. SHORT as shown...

These are “false breakouts” and the range rules capitalize on a further move back into the range (remember rule 1 as well).

Price does make legitimate break outs as well. That’s where an OUTSIDE Swing comes in...

An OUTSIDE swing is when the price moves out of the range, usually a greater distance (compared to ones that fail), and the next pullback stays OUTSIDE the range.

Enter as the price starts moving back in the breakout direction.

Here are examples...

If price pulls back & starts hanging out right on the breakout line, I don't do anything.

The winner of the battle hasn't been determined.

Sit back. Let another another wave unfold followed by a pullback.

See which side that pullback falls on. Wait for clarity or don't trade..

You can use these range rules to create your own strategy, or enhance an existing one.

I combine these rules with the several patterns I regularly trade.

I have courses on how I trade, as well as loads of free resources: tradethatswing.com/trading-course…

Follow @corymitc for more.

Here are some additional articles on understanding & trading with price action:

Details to watch: tradethatswing.com/become-a-maste…

See trend changes in real time: tradethatswing.com/how-to-spot-tr…

Key price action concepts for day trading:
tradethatswing.com/price-action-d…