Market Ranges: Adjust Your Trading Plan and Adapt

By Nick Pirraglia, http://www.TradersThinkTank.com

 I plotted some key points of interest on a daily chart of the SPY to show you how the markets can and will react to levels of support and resistance that forge a trading range over the next few weeks. It’s not predictable, but simply a guide to potential false breaks in both directions. Basically, I expect a lot of back filling , range trading and linear patterns to occur. A novice trader will get sucked into the daily moves on small time frames and expect breakouts to follow through as they have been in the past. But the past is over and the summer months will lead us into a range trading era up to and through earning season. I could plot many other charts in gold, silver, copper, currencies and show a ton of broken correlations or data that tries to prove a top or a trend shift but that will only get you into trouble. You need to focus on your plan and implement your plan according to the major market movers like the SP 500, $DJI and $NDX for the time being. Now is not the time for complicated trading methods. Keep it simple.

 Point being, don’t add risk to your trading these next several weeks because you are convinced the markets going to breakout and your going to catch that break or “anticipate” the break. Many very smart technicians and portfolio managers have wasted a ton of time, energy and money doing this at the wrong time.  Ignore the silly media pitches that are there to fill time slots. Use common sense and independent thinking in managing your trading techniques.

The SPY daily chart shows some potential ranges that can fill in the next few weeks. These levels can keep your trading in tune with the markets, your expectations and price moves. The key to trading ranges is to limit the risk if you are wrong. Also, to limit your expectations of a follow through and important high water mark levels in the stock or markets you’re trading. Set your targets to exact levels and adjust them according to the markets range contractions. Expect the oscillators studies that rely on momentum, volume and direction to give false reads most of the time.

SPY

Key points on the chart:

  • Parallel down trend in place with higher peaks and lower valleys. Projected by the green parallel trend lines towards SPY 155. 00.
  • Yellow circles show two very important markers. The long circle is the base and the small yellow circle shows the initial push – bar as price touched the 20 MA from the base up back in April. Note the next day the gap up that ignited a new up-trend.
  • The two parallel lateral blue lines show the price band between the two yellow circles as a potential large support zone if the markets continue to progress lower or a catalyst creates an expansion sell-off.
  • The trading “zone” is marketed by the tops and bottoms of the trends pointing down and the potential trading ranges within the trends.
  • The RSI and OBV circled in red is nothing we can really use, so expect more of the same.

Plotting ranges keeps us in check with expectations of gains and market directional moves. Trading the ranges successfully means you must know that your targets are within reach in your trading time frame and stick to those levels. Bad habits form when a trader is in the money and cancels the target limit because he/she “thinks” the markets will stay in their favor. A bad move in this type of market!

Trade to limit risk and take profits is the best method here. Even if it’s only a 1/3 of the position. I recommend at least ½ in ranges like these that I see developing.

Expect false breakouts on the first attempt in stocks and look for a clean pull-back with the intent to time entries with market stability within a range support zone.

 Nick Pirraglia

About Nickolas Pirraglia

Nick Pirraglia started his career in trading in 1991 after returning to the US as an Army Officer deployed in Iraq. He began as a bond broker and worked his way into trading. Expert mentoring, hard work and a disciplined approach to the markets has allowed Nick the ability to maintain a very successful career in Capital Markets and Trading for over 20 years as a professional OTC Market Maker and independent trader. Nick has also managed the trading desks for a two Dallas based capital management companies and traded equities for a Dallas based hedge fund. Nick has trained and mentored thousands of customers in the rigors of trading, technical analysis and risk controls. Recently, Nick had broadened his market experience through the design and product management of two automated trading platforms. He has the pleasure of working with some of the brightest minds in the trading community and has collaborated with experts in data, design, engineering and trading psychology. An avid long distance runner, Nick completed several marathon events, qualified for the Boston marathon, completed several long distance Triathlons to include finishing a full Ironman triathlon.
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