The Breakout Of A Trading Range Trading Ranges

A Trading Range must consist of more than ten price bars. The bars between ten and twenty are of little consequence. Usually, between bars 20 and 30, i.e., bars 21-29, there will be a breakout to the high or low of the Trading Range established by those bars prior to the breakout.

Most of the time a Trading Range will be preceded on the chart by either a gap or a bar which is relatively large in size from high to low. It may be any combination of the two.

The chart on the next page illustrates this point.

The first step after noting a gap or a series of gaps, or a large size price bar, is to begin to watch for a Trading Range (TR) to evolve. Here is how it will usually happen:

• There will be a gap or large single bar move up into or down into what will eventually be seen as a Trading Range (TR).

• There will be a leg counter to the thrust of the gap or large bar move. This is a leg up ► L

From now on, up legs will be referred to using the forward slash symbol /, and down legs using the backward slash symbol Y

• Then there will be a second leg back in the direction of the gap or large single bar move. At that point we have a market that, in its most recent action, has legs that look like this A, or this V, from a bird's eye view. It is then that we draw a horizontal line across the highest high, and a parallel horizontal line across the lowest low. (See boxed in chart on previous page). It will usually take about 10 bars or so for all of this to happen. The formations A or V constitute "market swings."

• In the next few bars, a third leg will form giving us N, or W This is the beginning of what may turn out to be a Trading Range. Again we draw horizontal lines across the highest high and the lowest low, unless the old ones are still intact. We have now established a rudimentary envelope that is delineated by drawing a simple horizontal line across the top of the Trading Range, and a parallel horizontal line across the bottom of the Trading Range.

• The next step is to count the number of bars on the chart. Some time between 21 and 29 bars, a fourth leg will usually be completed. The Trading Range now looks like AA or W. (See box in chart on previous page). If there had been a new high, a new low, or both, during that last leg, we would have redrawn the envelope. Usually this is not necessary.

We can now set a mental alert, a computer alert, or both, to tell us when we are approaching one of the prices which represent the outer limits of the envelope. Any non-gap breakout of these prices will constitute an entry point for us to enter a daytrade.

An interesting aspect of the Trading Range is that it appears to be one of only two techniques in which looking back actually has great meaning. Generally, we cannot trade based on what is in the past, it is the current bar's or next bar's price in which we are most interested. However, with a Trading Range, the inception will always come at the end of a trend, or stairstepping progression, or as an explosion or collapse in prices. Any time we witness what might be the end of one of the above, we immediately suspect that a Trading Range is about to ensue.

when we are looking back, we choose as the beginning of the trading range that price bar which most typifies the vertical center of all of the price action since prices began to congest.

This will be the least frequently occurring entry technique in our arsenal, but it will be one of the best. The thrust out of an envelope will yield many a worthwhile trade. The next figure will serve to illustrate this point.

7" Wegolongon a violation of the high of theTR.

Beginning bar of TR most typifies vertical center ^ v r of the price action at the point where the range " >r low and high are in place.

The entry point is a trade-through by prices of the breakout point. The breakout point is the highest high or the lowest low of the Trading Range. We will enter a trade at or before the breakout. We will not enter if prices gap past our entry point.

Budgeting Tips For Families

Budgeting Tips For Families

Learning all about budgeting strategies for busy families can have amazing benefits for your life and finances. Learn financial control with less effort and more results.

Get My Free Ebook

Post a comment