When price keeps on bouncing between two values, we call this market structure a Range. As compared to Trends, Ranges can be of many types and convey different stories of what’s going on.
Ranges are often the brief pause of activity for the prior Trend, so in that sense, they often represent a continuation of the Trend. Sometimes the Range would seem flat out unpredictable. It makes sense to watch them out on higher time frames, as it would put things in context.
The other prominent information that the Ranges carry is about a possible Trend reversal. Criteria are the same as for Trend Reversal. These Ranges get formed at the extreme values (Top for an uptrend, Down for a downtrend).
Next in the discussion are Parallel Ranges. Where the upper and lower boundary of the Range seems to be parallel to each other. These parallel ranges can happen horizontally or even appear slanted.
Now we come to Converging and Diverging Ranges. Converging Range, as the name suggests, when the price with each swing is converging on a level.
Markets tend to oscillate between times of big price moves (volatility expansion) and times of tiny price moves (volatility contractions).
Converging Ranges represent volatility contraction as prices continuously contract. Thus traders get into a lookout for possible volatility expansion ahead when the price breaks out of the Range.
As opposed to the above explanation, Diverging Ranges represent volatility expansion. Often the outcomes to these ranges are directionless volatility contractions where price consolidates. Although if you dig deep into trading literature you will find strategies around them. But I would suggest you spend your energy on other setups or apply/have a different thesis to the situation.
In the next lesson, we will look into how to trade these ranges to become a breakout ninja.