Contents
Why ranges are the base rate
Gold trends less than people expect and ranges more than people expect, and the discrepancy comes from the fact that human attention is drawn to trends. A trend is visible on a chart, a range is invisible. The result is that traders over-trade the range and under-trade it, when the range is the more common state.
A session range model is a way to work with the base rate rather than against it. It defines a specific range at a specific time, and then it has explicit rules for each of the three things that can happen next. No rule requires prediction, which is the point.
Defining the range
The most common and most useful definition is the Asian session range, from 00:00 to 08:00 London time, or roughly 05:30 to 12:00 IST. It forms in thin liquidity and gives you a high and a low that the rest of the day frequently respects.
The alternative is the pre-London range in the last two hours of the Asian session, which is tighter and gives a cleaner breakout. The tradeoff is that it produces fewer trades and requires more of a move to be worth trading.
A third option is a daily range built from the previous session's high and low, which is coarser but has the advantage of being known well in advance. We use the Asian range in the Asian range guide and compare the approaches in range trading for gold.
The three outcomes and their rules
Outcome one, the expansion. Price breaks the range and holds outside it, with the break showing sustained aggressive participation and the pullback showing lighter pressure against the move. The trade is to enter on the resumption after the pullback, with the stop beyond the pullback extreme. The target is the next significant level or a fixed multiple of the range height.
Outcome two, the failure. Price breaks the range, then immediately returns inside and stays there. This is a sweep, and the trade is to fade the break back through the range. The invalidation is beyond the sweep extreme. This trade has a naturally good reward-to-risk, which is why it is the more attractive of the two.
Outcome three, the grind. Price works its way out of the range over an extended period without a decisive break, often through repeated tests. This is the hardest to trade and the most common in low-news weeks. The correct response is usually to reduce activity, because the range is likely to hold for the session and a directional thesis is not paying.
Measuring whether the break is real
You need a quantitative filter, because “the break looked real” is exactly the bias that loses money. Measure the aggressive volume on the breaking bar against the average aggressive volume of the session, and measure the delta on that bar against its recent average.
A break that carries two to three times the average aggressive volume with delta expanding in the same direction is well funded. A break on average or below-average volume with flat delta is the classic failure pattern, because the price moved without anyone really paying for it.
Then measure the pullback. A healthy move shows a lighter, quieter pullback. If the pullback into the range edge is as heavy as the breakout was, the move is being sold and the break is likely to fail, regardless of how the breakout bar looked.
Order flow confirmation covers this comparison in more detail, and liquidity sweeps covers the failure case specifically.
The range expansion target
When you trade a break of a defined range, a natural and well-tested target is the range height measured from the break point. If the Asian range is 40 dollars and price breaks the high, a 40-dollar move is a reasonable first objective, and the measured-move logic has a reasonable basis.
This works because range height reflects the volatility regime of the session, and a break usually travels at least one range height before mean reversion takes over. The target adapts to conditions automatically, which is much better than a fixed pip target.
Take partial profit at one range height and let the rest run with the stop moved to breakeven, provided the move has not stalled. We cover the take-profit mechanics in take profit strategy for gold.
When to abandon the model
The model assumes the range is meaningful. It is not, on days with a major scheduled release inside the session, on days when the range is unusually wide because of a shock, and on days when the range is unusually narrow. A 10-dollar Asian range on a day with CPI means the range is noise, not structure.
The check is simple. If the range is less than about half the average range height for the current season, the setup is degraded. If it is more than twice, the break is likely to be violent and the measured move understates it. Both cases want a size adjustment rather than a different model.