What is a Trading Range?

The trading range has to do with the difference between the low and high prices associated with the trading activity of a security or group of securities within a given market. There is usually a time frame specified for the trading range. The duration of the trading range may be a few hours, a full trading day, or a full trading week.

There is a small difference between a trading range on a stock market and one that has to do with a commodities market. With the stock market, a range of trading focuses on the spread or difference between the highest price and lowest price recorded during the time period under consideration. The trading range can be used as a good indicator of how a stock is performing within the current economy and general market conditions

In the case of a commodities market, the trading range has to do with the scale of trading prices authorized by the market for the current trading period. Orders cannot be executed unless the price named in the order falls within the range set by the market. The range usually remains in effect for at least one full trading day, although a previous day’s trading range may be issued again at the beginning of the next trading day.

Regardless of whether the trading range has to do with commodities trading or security trading, information regarding the current trading range is very helpful to investors. The details of the range help to point toward other indicators that may influence a decision to buy or sell the security in question. Depending on changes in the trading range from one time period to the next, investors may see a trend developing that indicates purchasing additional shares is worth consideration. At the same time, analyzing the trading range of a security for several successive periods may indicate a developing trend that is not favorable. When that is the case, the investor can take the necessary action to minimize the amount of loss incurred.