1/04/2013

Understanding range expansion can help new traders


I get lot of emails from the readers of this blog asking where should they start if they are new to trading. It can be very confusing for new traders to decide what to focus on with so many blogs and books around.

The starting poit for any new trader should be by understanding a very basic market structure phenomenon of Range expansion. That is the most basic behavior of market. Stocks or ETF go through several range expansion and range contraction cycles. These cycles provide you a way to build your trading methods around them.

Stocks exhibit several range expansions during trends. Trends are never completely linear. Let us say a stock makes 100% move in 100 day, it does not make that move in increments of 1%. It makes it in series of impulse moves.

In reality the 100% move might just happen in 15 to 20 days out of the 100 days. As traders observed this phenomenon , they developed methods to exploit this market tendency.

By trial and error they refined several methods based on range expansion or range contraction. The evolution was craft based. Now with easy availability of computing power the same methods have moved to computers.

In order to make range expansion or range contraction based trading work for you, you have to move from the concept to trading methods. Fortunately there are literary thousands of range based methods in public domain. 95% of swing trading methods are based on range expansion or contraction.

If you study them , you will not be reinventing the wheels.
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