Friday, April 27, 2012

Expansion - Contraction

Summary from the book "The Master Swing Trader" by Alan Farley

Price bars expand rapidly into a climax through rallies and selloffs. Then congestion sets in annd volatility drops as bar range contracts along with price rate of change. This negative feedback characterizes progress until tight congestion signals an impending price movement that again releases into expanding bars. Patterrn readers have a trading advantage here because these entery points capture the eye's attention. Conversely, many math indicators hit neurtal zones in this environment and show nothing of interest.
Expansion - contraction ties closely into reward planning. Odds increae greatly that the next few bars will contract when expansion bars thrust into known S/R. For this reason, the appearance of wide range bares often signals the need for caution. The odds favor a pullback that will draw down profit substantially before ejecting into another move. 

For most trades, plan to exit when price expands into S/R. This strategy tracks the old wsidom that advises us to " enter in mild times but exit in wild times." Aslo consider closing the postion when the market prints a wide range bar that departs substantially from the routine price action but does not occur at a breadout point These often mark short covering moves, stop runs within smaller time frames, annd countertrend climaxes.

My Notes: The language is a bit difficult to grasp at first reading! However, the concepts are sound. There are cycles of contraction and expansion. Take trades during the periods of contraction. Exit on Expansion. 


Akash said...

Hi, Sir Your Comments View Nifty Cnbc Say"s Nifty Tgt 5050, If Nifty Come 5050, Brake 5150 , Bull Market Is Over , Rally Start 4530 To 5630 On Nifty , It"is Bear Market Rally ? After Brake 5150 , What is outlooke on market.we r in bull market or bear market ?guide me sir.

Darshil said...

Sir, on as recent as April 27 (result day), ICICI future was trading 5 Rs. premium and now in just 3 trading sessions (May 2), it is trading at Rs. 18 discount. How should a trader read this? In fact, many stocks have suddenly gone into huge discount today (RIL, SBI, HERO). Is there a set up 1 can keep an eye on (eg. short covering could be around the corner)for such stocks? Appreciate your views. Many Thanks, sir

Krishna said...


Just have a look at EOD charts!

Why we should not believe that a new bull run is in making?

We did not believe when-

• Step-1-when price crossed over 200SMA
• Step-2-when 50SMA crossed over 200 SMA
• Step-3-when 100 SMA is crossing over 200 SMA

Just look at charts attached, where is the sign of bearishness?

So if it is to be as per TA then why we should not believe that a new bull run is in making??

Please help me understand this.