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Using the Volatility Cycle - In 3 Minutes

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Whatever your trading style, it’s wise to factor in where the market is, relative to the trading range volatility cycle. This short video reviews how trading range is measured, and then overviews its cyclical tendency. True range includes any gapped-over range territory. Markets tend to alternate between periods of range expansion, and range contraction. Range swells as markets make directional moves. Supply and demand are out of equilibrium. This is when strong trends can form. Then, at some point, the market enters a period of rest. Price consolidates; equilibrium returns; and range contracts. This ebb and flow repeats itself over and over. In periods of expansion, consider momentum-based set-ups that follow the trend. But don’t push your luck when expansion begins to exhaust. Probabilities point to a forthcoming contraction. Here you may want to use strategies that fade off of support and resistance. Favor central tendency set-ups that anticipate a price return to the mean. When range contracts for a time, prospects then are that an expansion is near. This may be a good time to consider some type of breakout set up. In summary, be aware of this range volatility cycle, and select your trading setups appropriately.
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