July 5, 2012
Uncategorized
By Geoff Bysshe
After a stock consolidates it will very often have a nice breakout trade. This is just nature of markets. They go through phase of expansion and contraction. So identifying stocks that have consolidated, or are compressed in a range is a great way to identify breakout trades for day trading or swing trading.
This is a great trading pattern for volatile and quiet markets.
A quick and easy way to identify stocks that have become compressed is to scan for stocks that have a smaller than average range on a given day. This commonly referred to as a “narrow range day”. There are some well known patterns that are followed based on the concept. The most common may the “NR7” which is looks for the narrowest range in the last 7 days.
In the last week the markets have move up without much of a rest, so now is a great time to be scanning for narrow range days. After an expansion phase such as the one we’ve just seen, a narrow range day can indicate a potential reversal or a rest before a continue move in the direction of the trend.
In HotScans it is very easy to scan for narrow ranges. And as you’ll see if you look at the results from a scan of yesterday’s markets there are a lot of stock with tight ranges in very dynamic places in their daily charts. I’ve highlighted a few with red boxes that you may want to check out.
HotScans Results:
Creating this scan is easy, but there is a little trick you need to apply to the settings to get there. I use this scan at the end of the day to find stocks that have a range that is less than 50% of its average daily range. There are two required settings to get this result and I’ve circled them in the screenshot of the settings section of HotScans below. The two settings are:
1. Because HotScans does not have a setting specific to the day’s range you need to set your Opening Range to be the whole day. This may not be intuitive but it achieves the desired result. You do this by setting the Opening Range to “5 min Ago”. This means your opening range will essentially calculated as the whole day’s range. You’ll find this setting in the settings near the top of the page “Customize Scan Time and Display”
2. The second setting is found in the “Advanced Filters” section under “Opening Range (High-Low) and Volume. As you’ll in the screen shot below all you have to do is set your Opening Range to be “Less Than” “50” and set you measure of the range to be “% Avg. Range “
HotScans settings:
There are other basic settings you may want to consider. For example with this scan I only want volatile stocks to be considered so in my basic filters I require the Average Daily Range to be at least $1. This means that the average range over the last 30 trading days has to be at least $1.
I’ve saved these settings as a HotScans Favorite so I can simply pull up this scan with on click whenever I need it.
Since HotScans enable users to share favorite scans, I’ve enable you (if you’re a HS user) to get it by clicking this link below. Click the link to get results, then hit the Run Scan button to refresh it and then at that point you can save it into your own HS Favorites.
Click here for the "Narrow Range Day" saved scan