Range expansion and range contraction | stockbee

5/07/2014

Range expansion and range contraction



Range contraction is followed by range expansion and range expansion is followed by momentum burst of 3 to 5 days.

Range contraction in 3 to 5 days sequence is good place to look for possible range expansion.

For anticipation of breakout or breakdown look at stock that is having series of range contractions. Or look for range contraction after a momentum burst .


TTM is an example of anticipation setup where a series of narrow range days in last few weeks indicate possible big move on breakout or breakdown. I have a position in TTM in anticipation of possible breakout. narrow range days allow you to put very tight stop on such trades.

A range contraction after a 3 to 5 days momentum burst indicate loss of momentum and likely pullback or trend reversals.


TGT is an example of narrow range day forming before a possible turn. This stock I shorted after the narrow range days and closed the position yesterday after 2 day big drop.

If you want to react scan for range expansion , if you want to anticipate look for range contraction.

As a swing trader if you focus on range contraction you can find opportunities on both side for short term 3 to 5 days swings.

instead of worrying too much about market direction look for low range days. We  can wish for better market conditions, but as a professional trader you have to trade for living so you do not have luxury of perfect conditions.

 Let us say if the market remains range bound for next 6 month, you still need to find ways to make money. For swing trades of 3 to 5 days range contraction offers you those opportunities. 

1 comment:

Michel Nantel said...

"...but as a professional trader you have to trade for living so you do not have luxury of perfect conditions."

Pradeep, this is true if you are a day trader or a swing trader, but not necessarily true if you are a position trader. Personally, I can stay out of the market for months if I feel that probabilities are not in my favour.

Michel A. Nantel