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Stocks & Commodities V. 32:2 (28-30, 40): Small Range, Big Profits by Robert E. Ross
Stocks & Commodities V. 32:2 (28-30, 40): Small Range, Big Profits by Robert E. Ross
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Small Range, Big Profits by Robert E. Ross
Small Is Big
Small-range bars are your friends. Theyre talking to you. Listen to them.
Strong moves usually occur after low volatility, and low volatility usually shows up with small-range bars (SRBs). These SRBs can expose several profitable trading opportunities. In an SRB, the open and close price is almost the same, which suggests that buyers and sellers are almost equal in power. But dont expect this to last for long. When you see the appearance of SRBs on a price chart theyre easily identified on a candlestick chart it may mean that a significant price movement may happen soon.
Trend change ahead
When you see these SRBs occur on a chart, consider them an indication that theres a strong chance the price trend will soon change, either upward or downward. SRBs suggest that buyers are reluctant to take price higher and sellers are reluctant to take price lower. The bars signify a tug of war between buyers and sellers that is, they represent indecision by buyers and sellers. Candlestick charts depict SRBs as dojis, which indicate that the open and close are the same or almost the same. Examples of doji (SRBs) candlestick patterns are shown in Figure 1.
If they occur near a top, the trend change will usually be downward, and if they occur near a bottom, the trend change would usually indicate an upturn. SRBs dont always have tails but are sometimes accompanied by long tails, which represent the days high and/or days low. The position of the tail helps you decide whether the buyers or sellers are winning the trading battle for the day. If its a topping tail, control is most likely moving from the buyers to the sellers. If its a bottoming tail, the control is moving from sellers to buyers.
And then theres volume
In addition to being aware of the appearance of SRBs, you should consider volume since it will confirm or deny price action. Think of volume and price as supply & demand demand will be price, and supply will be volume. If price is heading up and volume is increasing, volume is supporting price movement. In other words, supply is supporting demand and the upward trend should continue. However, if price is rising but volume is falling, it means there is a divergence between price and volume. Volume is telling you that the trend is losing steam and a reversal in price may be imminent. Volume is signaling uncertainty at that price level.
Small Is Big
Small-range bars are your friends. Theyre talking to you. Listen to them.
Strong moves usually occur after low volatility, and low volatility usually shows up with small-range bars (SRBs). These SRBs can expose several profitable trading opportunities. In an SRB, the open and close price is almost the same, which suggests that buyers and sellers are almost equal in power. But dont expect this to last for long. When you see the appearance of SRBs on a price chart theyre easily identified on a candlestick chart it may mean that a significant price movement may happen soon.
Trend change ahead
When you see these SRBs occur on a chart, consider them an indication that theres a strong chance the price trend will soon change, either upward or downward. SRBs suggest that buyers are reluctant to take price higher and sellers are reluctant to take price lower. The bars signify a tug of war between buyers and sellers that is, they represent indecision by buyers and sellers. Candlestick charts depict SRBs as dojis, which indicate that the open and close are the same or almost the same. Examples of doji (SRBs) candlestick patterns are shown in Figure 1.
If they occur near a top, the trend change will usually be downward, and if they occur near a bottom, the trend change would usually indicate an upturn. SRBs dont always have tails but are sometimes accompanied by long tails, which represent the days high and/or days low. The position of the tail helps you decide whether the buyers or sellers are winning the trading battle for the day. If its a topping tail, control is most likely moving from the buyers to the sellers. If its a bottoming tail, the control is moving from sellers to buyers.
And then theres volume
In addition to being aware of the appearance of SRBs, you should consider volume since it will confirm or deny price action. Think of volume and price as supply & demand demand will be price, and supply will be volume. If price is heading up and volume is increasing, volume is supporting price movement. In other words, supply is supporting demand and the upward trend should continue. However, if price is rising but volume is falling, it means there is a divergence between price and volume. Volume is telling you that the trend is losing steam and a reversal in price may be imminent. Volume is signaling uncertainty at that price level.
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