trading tutorial helps trading in the commodity market and stock market

Reading Stock and Futures Charts - continued

How To Draw and Use Trading Ranges

Overview

Stocks and futures move into a trading range to build up energy for the next move up or down. It is is a sideways pattern and is one of the most profitable times to enter a trade because of its nearness to the beginning of the future trend. The bullish or bearish bias of the trading range is determined beginning with the third or later wave.. The third low (in August in the chart to the left) began a bullish trend that pushed it above the previous high. In this example, it was the first sign of a bullish bias

A

This is the end of a bullish climax (to the left of where this chart begins). It is punctuated by very high volume. Draw a horizontal line on top of the highest point. This is the supply line where selling occurs to push the price back down until the stock of future escapes the trading range.

B

Draw another horizontal line at the lowest point where the prices have gone almost straight down. This is the demand line where buying occurs to stop prices from moving below the trading range.

C

This is a "spring". Price punctured the demand line but recovered later in the day to move back into the trading range. This is very bullish because it shows that demand overcame supply to prevent more loss.

D

This drop towards the demand shows a successful test of the "spring" at point 'C'. It is a good test because the bottom was above the demand line and the volume was a little lower. This is the first buying point in this trading range.

Table of ContentsPreviousNext Page
Home | Contact Us | Disclaimer | Privacy Policy | Small Investor