TRADE RANGE – The Key To Profitability

The Trade Range is the price distance a stock needs to move up or down to trigger an Action. An Action is a Buy, Buy Cover, Sell, Sell Short or No Action.

To clarify, if the Trade Range is set at 5, that is the number of price points the stock needs to move up or down from the last trade price to trigger an Action.

The Trade Range is part of the Tactical Trading profit formula which is: Series Numbers Sum X Shares Per Series X Trade Range.

Selecting the proper Trade Range is very important. Think in terms of the Trade Range as a percent of stock price. Historically a Trade Range of between 2.5% and 5% of current price has proven to work well.

How the system determines the recommended Trade Range:

You can choose to use any number as the Trade Range, but rather than guessing Tactical Trading uses math to create the Trade Range.

We start by calculating the “Daily Move” of the stock. This figure gives us a starting point for our Trade Range calculation as it reflects the historical daily log change of price in dollars (see glossary for Daily Move). Often that result will work well as the Trade Range but the system allows it to be adjusted up or down to better reflect the amount of activity, and profit potential, desired.

To refine the Trade Range further we use the “Five Lines” technique. The Five Lines chart is available on several pages. It is a 40 period candle chart overlayed by five linear regression lines spaced by the daily move and acts like a volatility envelope. The spacing between the lines can be adjusted to range from the lowest low to the highest high of the chart. This will give the “best fit” Trade Range for the most recent price data.

When Stringing Cycles the Trade Range can be set to automatically recalculate at the conclusion of each cycle.