Every chart has stretches where price moves sideways, and the habit is to call each one a range and wait for the breakout. Many of them are only pauses, a few quiet bars inside a larger move, and treating a pause as a range is how levels get drawn that never held anything. Three tests help you decide, and you can run them by hand. The same tests run automatically in Edo Range State.
1. Is it compact?
Measure the height of the stretch from its highest point to its lowest and compare it with the <a href="what-is-the-atr">ATR</a>, so the test works on any asset and timeframe. A 20-bar stretch that is much taller than about 5 ATR is a move, not a range. Without a yardstick, whether something looks flat depends only on how far you have zoomed in.
2. Does it lack direction?
Compare how far the close travelled from the start of the stretch to its end with the total distance covered bar by bar. If price walked in a straight line the ratio is close to 1, and if it went back and forth and ended near where it started the ratio is close to 0. That ratio is the efficiency ratio, and a low value means there was no net direction. It cannot be used alone, because two long bars in opposite directions also give a low value without any range.
3. Has price rotated?
A range has two edges, and an edge only counts if price has visited it. Look for at least two separate visits to the top zone and two to the bottom zone. Price that has gone from one side to the other and back has shown that the market respects both limits. A quiet, choppy pause can pass the first two tests and still never reach an edge.
4. Decide on closed bars
Judge the stretch only once its bars have closed. A wick that pokes out for a moment can make a range look broken, or look larger than it is. Decide beforehand how many closes beyond an edge count as leaving, for example three in a row or one close a full ATR away, and treat a close that comes back inside as a failed attempt, not as the end of the range.
5. Read how it ended
A range ends in one of three ways: price leaves and stays out, price leaves and returns, or it never really leaves. Record which one happened and on which side. A failed attempt shows that the edge held that time, and a confirmed exit shows that the balance is over. Neither says how far price will go afterwards, so measure it on your own symbol before attaching any expectation to it.
