How to identify a trading range

How to identify a trading rangeThe price of shares may show a tendency either to increase or decrease, or may fluctuate in a fairly limited range. In the latter case, it is customary to talk about stocks limited to a certain price range; at the same time, for a certain period of time, the price of shares can neither rise above the highest price nor fall below the lowest price. You probably have heard that stocks limited to a certain price range are sometimes described as consolidating or forming a certain base. Despite the slight differences between these concepts, we will use them as synonyms.


Generally speaking, we are not very interested in trading stocks limited by a certain range of prices. Trading ranges can persist for long periods of time. In some cases, these periods can be measured over years. From the point of view of a position trader, investing money in stocks limited to a certain price range is a waste of time.In this case, you will not suffer any financial losses, but you will not win anything. We are interested in identifying stocks limited to a certain range of prices only from the point of view that over time they may begin to manifest certain trends. We are closely following the behavior of these stocks in the hope of finding a signal indicating the possible completion of the trading range and the beginning of the manifestation of a particular trend. Shares that go beyond the long-term trading range often begin to show trends that a trader can take advantage of for his own profit.


Trading ranges are not so difficult to detect after the fact, but it is almost impossible to predict when stocks can enter or exit a certain trading range. Due to this, as well as a number of other reasons, it is very difficult to trade in stocks limited to a certain range of prices. Some short-term traders manage to profitably sell shares restricted by a certain range of prices, therefore the words "very difficult" do not mean "impossible", but we advise you to become a successful trend trader first and only after that try to trade in shares limited to a certain range of prices .Tools that can be used in situations where the trade is conducted in a certain price range are described in Chapter 11. In Chapter 10, we discuss what to do if your existing shares cease to show this or that trend and become shares that are limited to a certain range of prices.


Identify the range of the easiest way to visual way. 9.8 shows a stock chart for Time Warner, Inc. {TWX) in a situation where trade is conducted in a certain range of yen.


The company Time Warner has spent about six months trading in the range of $ 14.75 to $ 17.00. Notice how Time Warner stock prices fluctuate in this range, never going beyond. Pay attention to the horizontal lines drawn on this chart near $ 14.75 and just below $ 17.00. These lines show support and resistance levels respectively. We will talk more about them in the “Support and Resistance: Nothing to Do with Underwear” section.

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