NVIDIA Corporation (NASDAQ:NVDA) is trading sideways on Thursday. It has been in a well-defined range since December.
There are two different strategies traders generally use with range-bound stocks. This is why NVIDIA is the Stock of the Day.
A trading range has resistance on the top and support on the bottom. As you can see on the chart, the range for Nvidia is between $171 and $195.
Resistance in a market can stay intact because of remorseful buyers. These are people who regret purchasing shares at the resistance when the price drops.
When the stock returns to the resistance, they place sell orders so they can exit their positions at breakeven. If there are enough of these sell orders, it will form resistance at the level again.
Support in a market can stay intact because of remorseful sellers. These are people who regret selling shares at the support when the stock rallies.
When the stock drops back to the level, these remorseful sellers place buy orders. If there is a large amount of these orders, it could form support at the level again.
Some traders like to wait for the resistance at the top of the range to break before they buy. If the stock can stay above the resistance, it illustrates an important dynamic. It shows that the sellers who created the resistance are gone.
They have either finished or canceled their orders. With this large amount of supply taken off the market, the stage could be set for a move higher. New buyers will be forced to outbid each other to draw sellers in, and this could force an uptrend.
Other traders like to buy shares at the bottom of the range and sell near the top.
Sometimes, some of the buyers who created the support become impatient and anxious. They start to outbid each other, and this forces the price higher.
There are many strategies used by traders to profit. Trading ranges and breakouts are two of them.
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