How to use range expansion to swing trade

Stocks move in direction of range expansion.

If a stock is in range contraction phase for sometime and then has sudden range expansion , it is safe bet to expect that stock to continue to move in direction of range expansion.

FRSH is an example of this. The stock spent 3 months going sideways. In last 15 days it had 11 days of narrow range consolidation from May 26 to June9th. If you study those 11 days you will see that  on 9 out of those days it was up or down less than 1%.

On 10th June it had range expansion and from that move in 4 days it went up 20% in 4 days. A 10000 shares position went up 30000 USD in just 3 days after entry.

The kind of moves you see in FRSH is an example of momentum burst . In momentum burst stocks go up 8 to 20% in matter of 3 to 4 days. In a year hundreds of time this kind of moves happen. Once you study nature of such moves you can  scan for them and trade them.

You can find them two ways. One way is by using a simple breakout scan that looks for range expansion. The other way is by scanning ahead of breakout and looking for stock having series of range contraction days.

Breakout based swing trading involves sacrificing some part of the move as you enter only once a range expansion is apparent. An anticipation based approach involves identifying a set of candidates having range contraction and entering in anticipation of range expansion. It can give you very low risk entry.

No understanding of business or fundamentals is required to trade these kind of range expansions. It is typically a short term trade with quick entries and exit and grabbing your profit and running.

Swing traders thrive on setups like these. If you want to trade something like this then you must develop skills in identifying such setups daily and entering and exiting them.

Study hundreds of past examples of these kind of setups and then you can recognise them in real time very quickly.

Once the setup is understood the daily process is very simple , run a scan and enter if you find good setup. Put very close stop as these trades work instantly if they are going to work. Exit on 3rd or 5th day or in frenzied buying on 3rd or 4th or 5th day. Exiting in to strength is best for such setups as many end up giving up gins after few days of momentum burst.

Once you develop a skill to trade this kind of setup it is a lifelong skill and you don’t need anyone’s picks to make money.