My TA Take on the current phase of the s&p 500.
Updated
In technical analysis there is a term referred to as a consolidation phase. A phase in which price action begins moving sideways. A consolidation phase is essentially a correction in time.
The thing about consolidation phases is that: they can expand and contract, therefore the current phase that the spy is in, is a consolidation phase, which can expand and contract.
When this consolidated range expands, I refer to this as an EXPANSION ZONE. An expansion zone entails: Higher highs and Lower lows, the over all market is not assuming a true bias until an uptrend (higher high & higher low) or downtrend (lower high & lower low) is established.
However, fortunately as traders, we can see this expansion zone as a tremendous trading opportunity. If the range I trade within continues to expand drastically, it can help me execute wider swings when trading. There is more volatility!
That being said, we should also be cautious about Contraction zones. A contraction zone is a type of consolidation phase however the overall range for the zone decreases and tightens. The actual range in which price action moves is isolated, making it very dangerous for traders to trade. Traders will have to trade within a tighter range, allowing for the high frequency traders to capitalize on the lack of immediate volatility.
I don't know how long this pandemic is going to last. I don't know how the stimulus plans are going to impact the stock market. The only thing I know for sure is that you should not trade within contraction zones. They represent diminishing opportunities as a result of decreasing volatility.
Consolidation isn't always uniform! Consolidation phases can expand and contract! An expansion zone can become a contraction zone. A contraction zone can become an expansion zone as well!
The market can stay irrational longer than you can stay solvent! - John Maynard Keynes.
I hope this helped! Take care!
The thing about consolidation phases is that: they can expand and contract, therefore the current phase that the spy is in, is a consolidation phase, which can expand and contract.
When this consolidated range expands, I refer to this as an EXPANSION ZONE. An expansion zone entails: Higher highs and Lower lows, the over all market is not assuming a true bias until an uptrend (higher high & higher low) or downtrend (lower high & lower low) is established.
However, fortunately as traders, we can see this expansion zone as a tremendous trading opportunity. If the range I trade within continues to expand drastically, it can help me execute wider swings when trading. There is more volatility!
That being said, we should also be cautious about Contraction zones. A contraction zone is a type of consolidation phase however the overall range for the zone decreases and tightens. The actual range in which price action moves is isolated, making it very dangerous for traders to trade. Traders will have to trade within a tighter range, allowing for the high frequency traders to capitalize on the lack of immediate volatility.
I don't know how long this pandemic is going to last. I don't know how the stimulus plans are going to impact the stock market. The only thing I know for sure is that you should not trade within contraction zones. They represent diminishing opportunities as a result of decreasing volatility.
Consolidation isn't always uniform! Consolidation phases can expand and contract! An expansion zone can become a contraction zone. A contraction zone can become an expansion zone as well!
The market can stay irrational longer than you can stay solvent! - John Maynard Keynes.
I hope this helped! Take care!
Note
I forgot to include this in the article but it should be of tremendous benefit to those that read this: When you're trading in an expansion zone you should just trade the price action within the expanding range. If the price action the expanding range says sell, you sell. And if the price action in the expanding range says buy, you buy. I emphasize this idea because eventually one of the buy/sell signals within this expansion zone will formulate an extended uptrend or downtrend. Treat it like a breakout! This is my opinion, this is not financial or trading advice. I hope this helped, thanks again for reading!
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