Ask Colin

Part of one of your Ask Colin answers was "My basic approach is to buy breakouts above a broad trading range". What do you mean by breakouts above a broad trading range?

Trading range is simply when the price of a stock goes up and down but makes no net progress upward or downward. In other words, the price fluctuates, but goes essentially sideways on the chart. This is called a trading range. Range means the difference between the high and the low. Trading means that the market has operated. So, there has been trading in a stock and the price has fluctuated within a range for some period of time. This could be a few bars, or a great number of bars. A broad trading range means that the sideways pattern is quite distinct in width (time). On a daily chart this might be many weeks. On a weekly chart this might be many

months. On a monthly chart, this might be a year or more. These areas of trading action always leap out at you from the chart. If you are in doubt, assume they are not there.

A breakout is when the price moves out of the range of the sideways pattern. If it exceeds all the highs, it is an upward breakout. If it exceeds all the lows, it is a downward breakout. Some people like to qualify the extent of the move above the highs or the below the lows, before they call it a breakout. If I am in doubt, I use 2% of the price as a rule of thumb.

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