Using Range Contraction and Expansion for Short-Term Trading

Summary

This indicator note explains a short-term trading idea based on alternating periods of small and large price ranges. Range is treated as the distance traveled over a chosen interval, and a narrow range is described as a possible warning that a wider move may follow. The discussion then links the direction of a large daily range to the relationship between the open and subsequent price action: a strong upward day is characterized as tending to hold above its open, while a strong downward day tends to remain below it.

The practical guidance is to avoid buying below the open when expecting a large upward move, and to exit a long if price falls materially under the open; the inverse applies to short positions. These are heuristic claims attributed to Larry Williams, not evidence from a quantified test. The note does not define “materially,” specify markets or holding periods, or explain how the indicator produces signals, so traders would need to test and operationalize the rules before relying on them.

Key ideas

• The method treats small price ranges as possible precursors to larger ranges.
• It uses the session open as a reference for judging the direction and strength of a large-range day.
• For a prospective upward expansion, the guidance is to avoid buying below the open and exit longs after a substantial drop beneath it.
• The inverse guidance applies to shorts when price rises well above the open.
• The claims are heuristic and lack defined thresholds or reported testing.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.