This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
While a trading range may not necessarily react at the exact same price twice, being able to identify a key general level at which the price is likely to revert is the key to success when identifying trading ranges. By taking a step back and surveying the wider picture, trading ranges will likely become much clearer. The best range traders will be able to discredit anomalies to gauge the wider picture, increasing the number of potential profitable trades.
The chart on the right represents another, albeit less clear, trading range, in which the stock rises and falls a total of 14 times.
While this example may be an extreme one, it shows how once a trading range has been identified it can present a remarkable number of potential opportunities to trade.
Trading ranges such as this can be trickier to identify, however once they have been found, they offer potential trades over several months.
The chart on the left provides a visual representation of a notable trading range over the course of 18 months.
The share price changes are contained within notable boundaries (support at 255p and resistance at 320p).
After initially rallying from support at 255p to resistance at 320p, the shares then sold off in the space of four months. This then happened a total of five times.
By holding a single long position over the entire period, a trader would have seen a maximum return of 25%. By undertaking five separate trades, your return could have been increased fivefold, while reinvesting profits and holding the shares during the subsequent breakout could have seen an even greater return.
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research
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