Range-bound Markets and Relative Strength
The road to trading hell is paved with range-bound markets.
That's not hyperbole, it's a fact. Most traders I come across fear the downtrending market, but it's actually markets that are stuck within a right range that are the most difficult to trade. In a down trend, wild price swings lead to volatility that adept traders can convert into dollars. On the other hand, volatility is sucked out of range-bound markets. Price action goes nowhere and most traders get chopped out of seemingly good setups.
Does that mean you completely stop trading until a trend develops?
Well, there's nothing wrong with that. Sitting on your hands is an option. However, I have a solution that leads to profits in even the worst range-bound markets. The first thing I do is pore over chart after chart looking for stocks that were momentum leaders going into the range. Next, I look for stocks showing relative strength in comparison to $SPY. Finally, I wait patiently for a strong entry signal.
It's as simple as these three steps.
I recently did exactly that with winning trend pullback trade $SOXL. Let's lay out the 3 step process in this trend pullback setup case study:
- Semiconductor sector was in a strong uptrend before SPY went into range-bound price action
- During the range, it showed relative strength compared to the market
- I entered triple leveraged semiconductor ETF $SOXL when it put in a strong hammer candle entry signal at support.
Notice our analysis is not just stock specific and setup based. Just as important is our analysis of the market, which was range-bound, and sector, which showed relative strength. Armed with this information we are able to beat the market and make the type of profits we expect in a momentum trading environment.
Watch the $SOXL case study video as I go into great detail all of the elements that made this a successful trade.
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