Sideways Price Ranges And How To Trade Them | Podcast Episode #37

0:07
Learn to trade stocks successfully. Learn to profit consistently. I’m Ryan Mallory, and on my weekly podcast, I’m going to teach you the ins and outs of a complex, ever-changing stock market. You will learn to trade better, trade smarter, and profit bigger.

0:26
Now, let’s go trade. Hey everybody, this is Ryan Mallory with shareplanner.com. I’m gonna do another YouTube and podcast with you here today, and I’m gonna be talking to you about non-directional markets. How do you handle them and uh what’s the best way to trade them?

0:42
So, A non-directional market for those of you who are new to this game. They happen all the time. They’re going to happen again in the very near future. They, they happen quite frequently throughout the course of a trading year regardless of how bearish or how bullish a market is.

0:58
There’s going to be times where the market simply isn’t trading with any direction in mind, so. Over the last, goodness, going back to the beginning of October when you had the huge sell-off, going from the October highs, all the way down to the December lows, and then the ensuing rally that kicked off uh the day after Christmas.

1:18
It’s easy to think that the market just is constantly topsy-turvy and it’s just going way up or way down, but that’s not always the case. There’s a lot of times where you just have moments of Non-direction in the market and so how you treat them. Really goes a long ways in determining how successful you’re going to be as a trader over the course of a year or many years to come.

1:40
So what exactly is a non-directional market? Essentially it’s where you have a price range. You have a top range and a bottom range, and price is just stuck within that price range within a specific period of time. It’s not going above it and it’s not going below it. So let’s say a stock goes from $50 a share up to $100 a share, and this is some.

2:01
Exaggerations here just for you to get the point, but say it goes up to $100 a share and then it just really doesn’t move much. It goes all the way down to $98 and then goes up to $102 and then comes back down to $98 and goes back up to $102 dollars and back down to $98 and back up to $102. Well then you have a price range that’s a non-directional market all of a sudden because, yes, it may have rallied from 50 to $100 and then it went up to $102 but then it dropped down to 98 and then it just kept staying within that range there, so it’s not moving around at all.

2:28
And so. You can get chopped up with your trading. You can start getting along at 100, 102, and then all of a sudden you’re getting stocked out at 98 every time, and that can create a churning over your capital and and quickly eliminate any profits you had prior to that that direction in the market.

2:47
So, There’s different time frames that this can happen on. It doesn’t have to be just on a daily chart. It can be on an intraday chart like a 5 minute, a 1 minute, a 30 minute, an hourly. It can be, like I said, on the daily, it can be on the weekly, it can be on the monthly, the yearly. So, there is a lot of different ways to view a non-directional market.

3:08
So, depending on the type of trader you are, a non-directional market on the 5 minute chart might not mean anything for a swing trader, but it can mean a lot for a day trader. Can it just be with the indices or yes, it, it, it not just with the indices, but also with, with equities.

3:25
It can happen with, um, option prices. It can happen with ETFs. I mean, so it can happen with any kind of, of trading vehicle out there, cryptos, forex, anything, OK? Um. But you have to define the range, and so that’s the important part.

3:40
So we talked about, you know, the stock that goes up to 102, drops back to 98 and goes back and forth. So. When you have that top end of the range defined, you have, you have resistance basically, and then when you have the bottom end defined, that’s your support. And so it’s bouncing off the support, selling off that resistance.

3:57
Now, there’s different ways to play the player range. If it’s a large enough of a range, let’s say it’s a 10 percent trading range, then you can, you can fade the moves to the upper range or the resistance by shorting the stock or shorting the index and then covering it back at at support.

4:14
And vice versa, when it hits that support, you can buy it and then at the, at the low end of of the price range or the support and, and sell it at, at resistance at the top end of the range. But now, if it’s a pretty tight range, then you want to look at it more from a breakout breakdown standpoint, so that you get long once it breaks out and above through that resistance or break down, you get short when it breaks down and below the support.

4:37
So, let’s go ahead and look at some uh examples here. So, the S&P 500. Despite all of the, uh, the, the rallies that we see over the, over the last 10 years, there’s a lot of periods of where it just really doesn’t move that much. So you go back to 2017, for instance.

4:56
Here we go. Late late December 2016, early January 2017, you have a very tight trading range for almost two months there and. One of the things that you’ll notice too about the tighter trading ranges is that sometimes you’ll have what they call head fakes, and head fakes can, they suck.

5:13
I mean, I don’t like them, and it, and it’s hard to tell when you’re going to have a head fake, uh, on the market. Essentially what it is, is when you have a breakdown out of the price range, and it looks like that it’s going to actually start breaking down in a very big way, but then instead, It just goes right back up into the price range, and you had that there in, in late December, early January, and it, and it kind of stunk if you got short and you were thinking that it was going to go right back up and it didn’t.

5:42
And you got short thinking that it was going to keep going down, down, down, but it didn’t. It went right back up into the, into that price range. And then you had the same thing happen later in January of 2017 where you had a breakout above the price range and it looked like, OK, we’re in a full breakout mode here, and then instead of it doing that, it just came right back down to the price range.

6:00
It was even more ironic is that that about a week later, it finally did break out. So sometimes you have to. Play these breakouts and they will result in head fakes, and that’s OK. One way to, to, to figure out whether or not it’s a legitimate breakout or not is, or a breakdown is, is the volume.

6:16
Now, if you look at this breakdown here, the volume was extremely low when it broke down. So, that would be perhaps a clue to say, OK, I don’t know if I really want to take this breakdown too serious, or just don’t put a lot of capital on that particular play. Until it proves otherwise.

6:31
So, you, you fast forward here and then you can see here there’s, there’s always periods of consolidation in the market, and then you go back into 2016, which was just tons and tons of, uh, consolidation. Before the election happened, uh, you go to April all the way through almost July and you just had nonstop consolidation in the market and then it did break out in July and then it consolidated again for a good, good portion of the, the summer and, and early fall.

7:03
All right, now let’s look at it from an individual trading standpoint. Pull up square here. And you will see, and this is, this has always been an exciting trade for me. I’ve, I’ve done pretty well with Trading Square over the years. It’s been a stock that has a good, uh, handle on technical analysis.

7:19
It tends to follow through, not a lot of head fakes or anything. But check this out. You go back, and yes, it’s been on an amazing rally, but if you go back, 2. 2017 of March.

7:36
You’ll see they had this incredible consolidation pattern here. You had a range, basically at about 1,636, and I’m just giving you quick numbers here, all the way up to 1754. And if it ever broke out above that, that price range, That was when you wanted to get long because it was really tight.

7:52
I mean, really, really tight, and then all of a sudden it breaks out and goes from $17 all the way up to, to $50 in change. So, yeah, I mean, it, it was just an amazing trade, but you could have had it by just playing off of this price range here and then it rallies and then it consolidates a little bit more in June, so.

8:10
Another perfect example of of how. On an individual trade, you want to look at the breakout, uh, breakdown opportunity and in this case in SQ it’s the breakout and how once it pushes out and above the, uh, the price range, you can get, you can get long on it.

8:27
So, the big takeaway here with price ranges and non-directional markets is to be patient. You don’t want to go get into margin or start trading options and everything because you’re getting frustrated because the market’s not giving as much money as you think you should be making because. Frankly put, the market doesn’t owe you anything, OK?

8:44
And sometimes there’s going to be conditions that that are beyond your control that’s going to say, OK, it’s not a good market for making a lot of, a lot of profits right now. A lot of it has to be more risk preservation, being patient and waiting for that next trading opportunity to come along when the markets are more favorable for adding more capital to the portfolio, for being more aggressive with your trading, but.

9:04
Right now we are in a market that’s rallied for about almost 2 months now, and it’s extremely overbought, and I think there’s a good chance that you’re going to see some price consolidation here and a lot of traders will have a hard time adjusting to that when the market starts going into a sideways trading action.

9:19
Now, I’m not worried about it. I know I can make money regardless if it’s a bull market, a bear market, or something in between like a non-directional market, but The, the thing is though, is it has a lot to do with how you position yourself, how much capital you employ, where you’re getting in at, timing, timing your entries at at ideal price levels and not trying to uh get too heavy on the um.

9:42
On the capital when the market’s really not committing to any one particular direction. So keep that in mind. Don’t, don’t be too aggressive. Wait for the opportunities for the breakouts, the breakdowns, or to be able to fade the price ranges when you’re stuck inside one of a, uh, of a larger, um. Price range.

9:58
So, non-directional markets, you can make money off of it, but you have to be patient. You have to curb expectations and take what the market gives you. That’s gonna be it for today. If you guys have any questions, feel free to uh email me, ryan@shareplanner.com and make sure you try out the trading block. That’s where I’m at every day.

10:15
I’m in there providing my own trades, my own commentary, and, uh, a lot of people in there providing their own, uh, great analysis as well. So I highly recommend and encourage you to check it out. Thank you and have a great day. Thanks for listening to this week’s podcast of Swing trading with Ryan Mallory.

10:31
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10:51
That’s www.shareplanner.com/trading-block. And follow me at SharePlanner on Twitter and on SharePlanner’s Facebook page where I provide unique market and trading ideas every day. If you have any questions, please feel free to email me, ryan@shareplanner.com.

11:16
All the best to you and God bless.