Video 18 A, B, C, D, E & F: Trading Ranges Flashcards
The purpose of the market is too…
Maximize trading
All markets are constantly in search of price that results in: Maximum trading and maximum number of trades. Price often has to go too far to see what a fair price is.
A Pullback in bear trend that has grown to more than 20 bars is no longer bear. It has evolved into a __________________________
Trading Range
The prior Bear Trend is too far in the past and has lost almost all influence.
Chance of Bull Breakout now same as for Bear Breakout: 50/50
When the chart stays sideways and perfectly balanced, the prior bull and bear trends have lost influence.
If one side had probability, the market would begin to go that way.
Hallmarks of a trading range are:
1.
2.
- Confusion
2. Disappointment
Know the difference between a “Bull Trend” and a “Bull Leg in Trading Range.”
No strong breakout with follow-through above prior high.
No consecutive bull bars
When you get a channel that is weakening, it is probably an early stage of a Trading Range
Do not trade a Tight Trading Range (TTR) on any time frame
When you see them, look elsewhere to trade.
Define Ledge:
When 3 or more bars has a high or low at the same price. Identical high or low.
5 or more bars is a stronger magnet
This means important price
80% chance of a breakout above, but can get selloff first (not shown here)
Ledge is important as it will be broken through, even a week later. See Photo
Trading when in Limit Order Market Trading Range
To scalp in a Tight Trading range, need most bars more than the size of scalp.
Also, need height of range to be either:
3 times of smallest scalp or 3 times size of average bar.
There is a slightly higher probability of bull breakout when Tight Trading Range (TTR) is mostly above the moving average (but still not much)
Once the market gets near a fair price, the bars get smaller and the legs get smaller.
There’s consensus that this area is a good spot to buy and sell.
Whenever a market has a lot of trading range price action like pictured, it frequently has a very strong 2nd leg. making traders believe that the trading range is ending and the market is converting into a breakout and then a strong Bull Trend.
A 2nd Leg Trap is a a strong 2nd leg that reverses, instead of having a pullback then a 3rd leg/an additional leg up.
The market is constantly drawn to magnets, support and resistance.
The closer it gets, the faster it moves, just as with a magnet
Magnets include:
Trend Lines
Prior Highs and Lows
More Magnets include:
Height of breakouts
Trading Range Height
Measuring Gaps
More magnet theory: Once the market gets close to the top and the bottom of the Trading Range, it is within gravitational field of edge of range.
The closer it gets, the stronger the magnetic pull. Faster it moves.
Once it gets there, the magnet is turned off.
Like any magnet the closer it gets, the stronger the pull.
Once at the Magnets, the magnet disappears! Market usually reverses then tests/drawn to the opposite support and resistance.
Market decides it has gone too far.
Now need to probe the opposite direction
Just above bottom of a Trading Range, both bulls and bears see the bottom as support. Institutions believe that the market will test a little lower, and reach the bottom of the range.
So what do bull buyers do?
Bull will stop buying and wait to buy lower. Bears also expect test and wait to buy back shares lower.
You get bull not buying and bears selling, the result is the market has to go lower.
Both believe the market will go a little lower, so doesn’t make sense to buy until the market gets there.
The opposite magnet takes place at just below the top of a trading range
Right below a prior high. Market goes up quickly. Bears stop selling because they think price will get to range high.
Beginner sees momentum, not Support and Resistance.
Beginners and the stupid novice trader educator that don’t know any better sees a breakout of a trading range and doesn’t want to miss the move. But doesn’t understand context, and buys high and sells low!
A beginner and his novice educator enters at market on a small pullback and wants to catch the second leg. See Photo
The most important thing to realize in a trading range is….
You make more money by scalping. If you don’t, price will come back to your entry price.
All trading ranges eventually break into trend
Every trading range always leads to a successful breakout
50% of Trading ranges break out in wrong direction, before breaking into trend.
Look at every breakout as a possible reversal, that will lead to a successfull breakout in the opposite direction.
When there is a breakout, be ready for a trend in either direction.
Trading Range Breakout: 50% chance 1st Breakout will Reverse.
See Photo
Early signs of a pending/likely Trading range day
Flat moving average
No gap on the open
Prior session was a trading range
Feelings of anxious or confused. This is a personal radar. Don’t worry about trading it like a trend because it’s not and may not turn into a trend.
It’s easier to buy below bars, and selling above bars. So limit order are making money, and stop orders are not. “Limit order Market.”
A Trading range day often closes near the middle. So daily candle is a doji bar.
See video on “Trading the end of day” for more on the behavior on a trading range day.
