I have been a regular contributor to CNBC’s Fast Money since April. While I enjoy doing the show and sharing my nuggets of wisdom, the format does not really allow me to fully explain my trading setups and thought process. Often, I only get a few seconds to explain a trade, that, if I was sitting down with someone one on one, would take several minutes to explain. Part of the issue is the show’s format, and the other part is that I need to be more concise. The guys on the desk kid me all the time that I love to talk. I’m working on getting better. That said, I am going to use this blog format to help explain and clarify some of my thoughts, trading setups, and trading techniques in more detail.
Last Monday, I appeared on the Fast Money Nighttime show to talk about Range plays. A Range play occurs when a stock trades between two well defined levels for a period of time. The top part of the range is resistance and the bottom is support. The range can be 10 cents, 50 cents, one point, 10 points, 50 points, etc. There are different range plays for different time periods: intraday, monthly, yearly, or multi-year. The Dow Jones sat in a range between 740 and 1000 from 1962-1982. That is 20 years!
So, why do I like range plays? First, they are a low risk, well-defined setup. You have specific entry and exit prices. You know exactly where you will get in and out of the position. Now, that doesn’t mean you have to buy all your shares exactly at the bottom of the range or short at the top. Personally, I like to scale into a position as it approaches the bottom or top part of the range. This way I have a position in case the stock does not trade exactly to my price. And, if you have tape reading skills, you can improve your entry and exit prices because you will be able to read the order flow. You can see if someone is aggressively selling at the bottom part of the range or buying at the top and determine whether the range is likely to break.
The key points to remember when trading Range plays are:
1 ) Always use stops. Managing your risk is key!
2 ) When the range breaks (at least for the moment) the range play is now void. Exit your position, and gather information.
3 ) Identify the type of market we are trading in: Are we in a trending market? Are we in a range-bound market?, etc.
4 ) Know the industry that the stock is in: Tech sector for IBM. Financials for JPM. By watching the other stocks in the sector you can get clues as to whether the stock is likely to break out of the range.
Range plays are just one trading setups that I use in my trading playbook. Range plays are around in all types of markets, and if you can master this play, it will add to your trading profits.
I have highlighted the Range plays that I talked about on Monday’s show. IBM: 116-120 and JPM 41-43. Please don’t hesitate to leave your comments on this blog or e-mail me if you have any questions.
Happy Trading!
13 Comments on “Playing the Range”
Well said…i enjoy reading your blog posts. My favorite intraday range trade is when the first 15 minutes happen to be the whole morning range, then on range-bound markets the stock will have a false breakout in the afternoon session with a high probability setup to trade back into the range.
Well said…i enjoy reading your blog posts. My favorite intraday range trade is when the first 15 minutes happen to be the whole morning range, then on range-bound markets the stock will have a false breakout in the afternoon session with a high probability setup to trade back into the range.
Well said…i enjoy reading your blog posts. My favorite intraday range trade is when the first 15 minutes happen to be the whole morning range, then on range-bound markets the stock will have a false breakout in the afternoon session with a high probability setup to trade back into the range.
Good tips for short term trading! We need reminders such as these now and then. Thanks!
Good tips for short term trading! We need reminders such as these now and then. Thanks!
Would you differentiate between good range days (when they actually bounce of intraday supports) and sloppy range days (when they trade around intraday supports but eventually bounce)?
How would you rate today?
Happy Trading!
Would you differentiate between good range days (when they actually bounce of intraday supports) and sloppy range days (when they trade around intraday supports but eventually bounce)?
How would you rate today?
Happy Trading!
saw you try to explain this play to guy adami the other day and he didn’t seem to get the point….?
after IBM’s failed breakout above $120 today are you still inclined to play the range or are all bets off?
personally i think it’s innocent until proven guilty seeing as the volume has been so lackluster since its initial run-up to $114 in July. i think that $114 support is buyable but i don’t know about shorting $120 anymore. your thoughts?
saw you try to explain this play to guy adami the other day and he didn’t seem to get the point….?
after IBM’s failed breakout above $120 today are you still inclined to play the range or are all bets off?
personally i think it’s innocent until proven guilty seeing as the volume has been so lackluster since its initial run-up to $114 in July. i think that $114 support is buyable but i don’t know about shorting $120 anymore. your thoughts?
saw you try to explain this play to guy adami the other day and he didn’t seem to get the point….?
after IBM’s failed breakout above $120 today are you still inclined to play the range or are all bets off?
personally i think it’s innocent until proven guilty seeing as the volume has been so lackluster since its initial run-up to $114 in July. i think that $114 support is buyable but i don’t know about shorting $120 anymore. your thoughts?
i meant to say $116
i meant to say $116
i meant to say $116