This is the most important guideline when it comes to establishing a range, and it is required even if the large, impulsive motion that occurs before the range is very helpful but not a requirement.
This relates to our previous discussion of the technical distinctions between range and trending markets. The price must make a swing high and a swing low that are contained within the current price action zone following the strong impulsive advance. Let me explain.
There is a downward tendency. Without rising above the previous LH or falling below the previous LL, the price makes a first swing high and a first swing low after making that final LL.
It then remains above it for a while. This is a very strong signal that the trend has slowed or stopped, and a trading range is probably going to form.
This pair is moving sideways as long as the price remains contained within the red rectangle, and if a range forms, you should try to trade it. Let us look at another illustration.
Here, the same thing occurs. The price first makes a swing low and then a swing high, both of which are inside the recent price action region, after the trend shifts from a downward to an upward one.
Trading ranges begin in this manner, and the swing high and swing low rule must always be followed. Please take note that the swing high and low must be pertinent to the current timeframe’s price action.
Ensure that they roughly correspond to the highs and lows of the surrounding price action in terms of size or degree. Labeling the highs and lows of the trend puts you in a similar dilemma. Let me explain.
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