Trading Basics Everyone Should Know (#4): Range Reversals
Trading Lessons by Yale ReiSoleil
October 9, 2018
There are many patterns that stay relatively true in trading charts, but there is ONE pattern that is always TRUE, but often times, for whatever reason, it is not discussed with or taught to new traders. It is the Range Reversal pattern.
Ranges do always reverse
It is very simple:
- Large (long)-range bar(s) will always lead to small (short)-range bars;
- Small (short)-range bars will always lead to large (long)-range bar(s).
Please note the plurals.
This has always been true.
I will not try to explain why this happens. There are many plausible explanations, but they don’t matter. First of all, we traders don’t ask, or care about, the“why’s.” Secondly, this pattern has served me very well for over two decades.
Please take a look at the chart below. The blue ellipses indicate long ranges while the purple ones are the short ranges.
BTC October 9, 2018, 1-day chart
Don’t jump in right AFTER a big move that has just taken place
Your friends or the guy on TV are telling you that they have just made a lot of money yesterday and are urging you to take the jump. Don’t. It is already too late (for that particular move).
How many times you did that and just watched in agony that the market just moved sideways for days and was going nowhere? Not only beginners make such a mistake. Most “Strong Buy” rating is made by analysts at the top too (when it should correctly be a “Strong Sell”).
People often get excited after a big range move. This is precisely the time you should not make any moves.
Don’t listen to “experts” or “analysts” saying Bitcoin’s immediate “implosion due to the record low volatility”
It is true the BTC market has been moving sideways in a month-long excruciating direction-less trading pattern. It is not an indication of market implosion, but a damn sure indication of a major market move, either UP or DOWN.
It is a little too early to tell, although I have my own directional bias.
Now it is the time to prepare for a big move. In our trading, we are now making sure we free up trading capitals for that strong upward- or downward-move.
How to prepare to enter for long or short is another subject in another time.
*Disclaimer: This is not a recommendation to invest, nor can this be considered an investment advisory service. No money changes hands that will benefit IOB as a result of this post. Full disclosure: We long BTC and ETH at the time of the publication.
2 days after publishing:
A long-range bar formed after the recent month-long short-range bars (the long downward red bar); itself is being followed by a short-range bar (the very last short bar).