Different Ways To Profit From SoundHound - SoundHound AI (NASDAQ:SOUN), ResMed (NYSE:RMD)

Shares of SoundHound AI, Inc. SOUN are making a nice move higher Tuesday. Some analysts believe that this is due to a report that suggests institutions make up more than 30% of the company's ownership.

Despite the move, the stock is trading within a well-defined range. This means there may be opportunities for low-risk trades. This is why it is our Stock of the Day.

There are generally two ways that traders can profit from rangebound stocks.

The first is to sell close to the top of the range and to buy near the bottom of the range. Yesterday's Stock of the Day covered this strategy with ResMed Inc. RMD.

At the top of a range, there is resistance, and sometimes stocks sell off when they hit resistance. At the bottom of the range, there is support, and sometimes stocks rally after they hit this support.

There is also another way to trade a range. This involves trading a breakout or breakdown. See below.

Resistance is a large concentration of stocks that are for sale at, or close to, the same price. Sometimes stocks sell off of resistance because people who wish to sell start to undercut each other. The buyers will go to whoever is willing to sell at the lowest price and they don't want to miss their trade.

But sometimes, the buyers overpower the sellers and push the stock through the resistance. This is called a ‘breakout'. These tend to be bullish dynamics. It shows that the people who created the resistance are out of the market. They have either canceled or finished their orders.

With these sellers gone, people who wish to buy will need to be willing to pay premiums and this could force the stock into a new uptrend. This is why some traders buy stocks that are breaking out.

Support is a large concentration of buyers willing to pay the same or close to the same price for new shares. Sometimes, stocks rally off support when buyers start to outbid each other. This could result in a snowball effect that forces the price higher.

But sometimes, the sellers overpower the buyers and push the stock below the support. This is called a ‘breakdown'. This tends to be bearish because it shows that the investors and traders who created the support have left the market.

Sellers may be forced to push the price lower to get the attention of buyers. This could form a new downtrend. This is why some traders sell when breakdowns occur.

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