Dow Theory - Lines (Ranging Markets)
A secondary reaction may take the form of a line which may endure for several weeks — where price fluctuates within a narrow range of about five per cent.
Breakouts from a range can occur in either direction.
- Advances above the upper limit of the line signal accumulation and higher prices;
- Declines below the lower limit indicate distribution and lower prices;
- Volume is used to confirm price breakouts.
Active or Reactive?
Many investors follow active strategies but end up being reactive, rotating in and out of stocks at the wrong time.
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See Trading Ranges for more detail.