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Trading both ways in a Range

The piece I wrote on Support last week was well received, thanks to the range of charts I used, which bounced 2-12%. So I’ll continue the theme by revisiting another retail investor favourite: Fallers.

If you’re expecting a list of names which fell sharply this week and could be due a bounce, you’re out of luck. I’ve written about calling the bottom before. Rather than doing this, and falling foul, is it not better to wait for a hint of a bounce first?

Chart 1: GSK

Chart 1: GSK

What about looking at things in reverse? You’re already familiar with ranges, buying around the floor, selling around the ceiling. If you are comfortable with this, and confident a range will endure, why not sell short around the ceiling and profit from down-move too?

It’s precisely the same as buying off the floor, just that this time you’re aiming to also benefit from the share price fall. Possibly before you buy back in again around the floor. Rather than profit from one leg, why not make the most of two?

I make a point of mixing it up in the trading opportunities I send to clients. I offer up both positive and negative ranges. Sometimes they are neat and horizontal; others can be in rising or falling channels.

Sometimes I even recycle. If a trading opportunity works out because the shares rally back to the ceiling, I’m likely to reverse the call once the shares show signs of topping out, highlighting a new opportunity around the ceiling. If the range endures, sometimes I’ll rinse and repeat several times.

Chart 2: Pennon

Chart 2: Pennon

Why wouldn’t I? The longer a trendline of support or resistance endures, the stronger it becomes. This, in turn, strengthens the range, making it even more tradeable.

It won’t work every time. That’s why stop losses are there. To protect from excessive losses when the shares don’t do what you want/hope/expect. And if it doesn’t work, it likely because there has been a breakout (or breakdown) which is a potential trade opportunity it its own right.

Examples of negative ranges we have highlighted of late include drug giant GlaxoSmithKline (chart 1, above), this week, at the top of  range that goes back to October. It’s early days yet, but so far so good. And it is does break higher, the shares could rally all the way to June 2017 highs!

Another very successful one for us was Pennon (water utility; Chart 2), which we first highlight 3 weeks ago. It has since fallen considerably, Note the shares turning over, then breaching rising support, and then breaking below late-Feb lows.  Lots of confirmation signals along the way. Might they fall go all the way to the floor?

Every day Accendo’s award-winning Research team highlights to clients a pair of Ranges. These might be charts highlighting potential for a rise to the ceiling, or a fall to the floor. This is also alongside Support and Resistance, Breakouts and Breakdowns, Momentum and much more, which may also be within ranges.

To receive all our future range trading ideas – and much, much more – get access to our Research Gold PassLet us do the hard work, trawling the FTSE’s hundreds of charts for the best ranges.

Mike van DulkenHead of Research, 28 March 2019

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance.

Prepared by Michael van Dulken, Head of Research

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