|
|
|
|
|
|
| |
| COILED SPRING |
| |
Markets cycle continuously through bursts of intense activity, followed by periods of relative calm. This natural pulse of inhalation and exhalation allows price to step sharply toward a new level, thoroughly test its boundaries and continue forward (or reverse) after new range resistance is established. As this test evolves toward its final outcome, a stock may exhibit key characteristics of an impending vertical breakout. Smart traders can identify the signature for this Coiled Spring move and make their play well ahead of the crowd. |
| |
| After a healthy 15-point rally, INTC's low volume price drop flagged the eruption of a Coiled Spring breakout. Following a series of narrow price bars, the expansion day at 85 triggered a runaway 10-point continuation move. |
 |
|
| |
The Coiled Spring arises from continuation of a dynamic trend. The relative power of the last ramping move predicts the inclination (declination) of subsequent price thrusts. Therefore, vertical movement must characterize those price bars. Odds further improve when two moves of the same angle have already taken place, but decrease for three or more prior thrusts.
Visual inspection of price bars within the congestion must demonstrate narrowing range, i.e. overall decrease in average length of the bars or candles. The odds for an impending Coiled Spring breakout increase when the current bar is the narrowest of the last 7 bars. And when each of the last two bars are the narrowest of the last 7, a dynamic breakout (or breakdown) is imminent. |
| |
| Focus on Day Trading |
 |
| |
|
Narrow range bars can be utilized on intraday charts under certain circumstances. Due to lack of liquidity, avoid them on all but the highest volume stocks. Also, insist that their appearance coincides with key support, resistance or other meaningful price levels. And upshift to a 15-min bar chart to capture a better view of short-term conditions.
Under the best of circumstances, traders risk entering a dead market using only narrow bars to choose entry on either 5-min and 15-min charts. But when all other factors converge, as they did with Concord's impressive rally, NR7s provide a valuable cross-verification measure for your day trades.
|
 |
|
| |
|
Volume must trend sharply downward as the congestion progresses. Any volume spike not producing an immediate breakout, but violating the downtrend of the short-term volume, negates the trade. General price movement should counter the prevailing trend. The most powerful CS breaks will occur after price swings sharply against the trend but not violate any significant support or resistance. Use NR7s (narrowest range of the last 7 bars), volume and moving averages to pinpoint the terminus of this counter-trend extreme.
Examining patterns within the next lower time frame will reveal effective trade entry points. Congestion between powerful trending movement frequently appears as a 1-2-3 wave against the trend. Cautious traders also closely review the next time frame above the one under evaluation. Large-scale price development may produce support and resistance not previously considered. Finally, if the larger scale trend is opposite to the current trade, the congestion zone may not immediately resolve into another profitable thrust. |
| |
| Range Bar Analysis |
|
|
Futures markets have used range bar analysis for years. A classic on the subject, Toby Crabel's Day Trading with Short Term Price Patterns and Opening Range Breakouts, investigates how expanding candle and bar patterns characterize momentum in many commodities and indices. The emotional crowd provides fuel as bar range stretches in the direction of the prevailing trend. Finally, a climax bar prints a sharp reversal under surging volume.
Computation indicators (such as Stochastics) measure bar range indirectly. By going straight to the bars themselves, visual analysis yields profitable short-term prediction. However, not all markets can be accurately examined through range changes. Low volume stocks, for example, carry high spreads that will distort signals. Limit bar analysis to highly liquid markets with low spreads and high average daily movement. |
| |
| Short-term traders should closely examine small price bar formations. Narrow and wide range bars signal measurable change within the crowd and impending price movement. One classic pattern is NR7, the narrowest range bar of the last 7. These predict breakouts that can be safely traded in the direction of the first impulse. |
 |
| |
| Movement out of a NR7 tends to continue in the direction the NR7 bar is first violated. This tendency allows for a tight stop just beyond the range extreme opposite to the position taken. In CSCO's chart, note how this violation signaled an immediate 8% to 10% thrust. |
 |
|
| |
|
| |
|
[AD] |
| |
|
 |
POWERFUL
ONLINE
TRADING
COURSE |
From
HARD RIGHT EDGE |
 |
Your
Original Guide
to
Successful
Short-Term Trading |
|
Highly Effective
Market Strategies
and
3-D Charting Techniques |
|
Get
More Info |
|
|
|
| ALL-NEW AND FULLY-REVISED |
THE COMPLETE
CD-ROM GUIDE
TO THE 7-BELLS |
|
|
|
McGRAW-HILL PUBLISHERS
presents |
|
Trading Skills
for a New Generation |
|
Hard Right Edge Founder
Alan S. Farley |
 |
| ORDER NOW! |
|
|
|
| |
|
