Expansion – Contraction.

Summary from the book “The Master Swing Trader” by Alan Farley

Price bars expand rapidly into a climax through rallies and selloffs. Then congestion sets in annd volatility drops as bar range contracts along with price rate of change. This negative feedback characterizes progress until tight congestion signals an impending price movement that again releases into expanding bars. Patterrn readers have a trading advantage here because these entery points capture the eye’s attention. Conversely, many math indicators hit neurtal zones in this environment and show nothing of interest.

Expansion – contraction ties closely into reward planning. Odds increae greatly that the next few bars will contract when expansion bars thrust into known S/R. For this reason, the appearance of wide range bares often signals the need for caution. The odds favor a pullback that will draw down profit substantially before ejecting into another move.

For most trades, plan to exit when price expands into S/R. This strategy tracks the old wsidom that advises us to ” enter in mild times but exit in wild times.” Aslo consider closing the postion when the market prints a wide range bar that departs substantially from the routine price action but does not occur at a breadout point These often mark short covering moves, stop runs within smaller time frames, annd countertrend climaxes.

My Notes: The language is a bit difficult to grasp at first reading! However, the concepts are sound. There are cycles of contraction and expansion. Take trades during the periods of contraction. Exit on Expansion.