Range contraction and range expansion | stockbee

1/22/2014

Range contraction and range expansion


LM: Leg Mason Inc. 

One of the basic tendencies of markets is that periods of range contraction or low volatility are followed by periods of range expansion or volatility implosion.

To anticipate a breakout you have to scan for or identify stocks in range contraction or low volatility phase. From that stage the stock will eventually breakout in either direction. In case of LM it was a bullish breakout. It offered a low risk entry point.

Long running trends have series of such range contraction and range expansion periods. This offers swing traders several opportunities for swing trades.


4 comments:

Jay Roubini said...

now a failed breakout

Pradeep Bonde said...

Yes

CNoland said...

Is there a particular way you choose to scan for volatility contraction?

Pradeep Bonde said...

I use % change move to find the contraction.