Suzlon has been trading in a very tight range between 14 to 15.60
10 Reasons To Buy Stock Trading In Very Tight Range
Stock volatility is
the beauty of stock markets. But, sometimes shares may trade in a narrow range. You might look for reasons
to buy stock trading in very tight range. Equities may trade in abnormally narrow or tight range as compared to its normal trading range.
This tight band is usually irrespective to overall market or stock index movements. A
given equity may trade in very tight range from few days to few weeks to even few months. It
is often considered as a good
trading opportunity with
clearly defined risk levels.
This low risk is
due to the fact that if any initial move fails then price doesn’t have to go
very far back. Therefore, you can easily exit your positions quickly without
negligible losses. Here are 10 positive indications or things to know when
share trading in extremely small or narrow band:
(1) Big Institutional Buying
It is one of the most significant reasons to buy stock trading in very tight range. According to a post published in Investors, big institutions or fund houses or even big investors are often
the key players behind very tight band.
They can’t place a single huge buy order at market price or limit price to
accumulate shares. It is due to the fact that such huge quantity of shares is
usually not traded in a given company in a single day.
Additionally,
placing a single
huge order also
resist public shareholders from selling their stake. Small investors usually gain confidence in buying or holding shares after seeing bulk buying orders.
They prepare themselves physically, financially or even emotionally for holding their stake for more time.
This results in the formation of tight range patterns before commencing a big
& volatile move.
(2)
Consolidation Of Shares
It is one of the most authentic & positive reasons to buy stock trading in very tight range.
Consolidation or accumulation of shares, will take place when big & smart
investors are making buy positions at a particular price of shares.
Shares can trade in narrow band with
more or less volume. If share trading is taking place with high volume then
perhaps it is a good
indication of accumulation of shares by large investors. This strategy is
referred as ‘churning’.
In
this case, significant accumulation takes place. They place bids at lower side of the trading range to catch those shares that fall in their
way. And when the shares start rising up to higher side of trading range, they
stop buying it. Naturally, the price stops rising.
However, there is still plenty of demand for such a stock from big institutions or
investors. It will become visible at some point of time usually after bullish
breakout on upside.
(3)
Big Investor/Promoter Cutting Stake For Positive Reasons
It is one of the most probable reasons to buy stock trading in very tight range.
Big investors may find several opportunities for investments to increase their
funds. Sometimes, one of thebig investors or promoters may plan to exit or cut his/her stake in
a given company.
Some of the positive reasons to cut stake in a company include increasing funds for the growth
of company’s projects, meeting debts obligations, investing in some other high
yielding assets, exiting for personal reasons, & many more.
Once they assess such big & opportunistic news,
they keep the price artificially lower & in a tight range. Therefore, to
get the benefit of buying
large number of shares at low price, big investors start trading
stocks in tight range. This hidden news is usually not available to public in
advance.
(4)
Solid Support Formation
It is one of the most common & positive reasons to
buy stock trading in very tight range.According to a post published in eHow, a falling stock will continue to fall sharply until the supply of
stocks that are available for sale gets exhausted.
At a certain point sellers of stocks (or bears) may get exhausted or the buyers (or bulls) may finally come in action. At this point
buyers (bulls) & sellers (bears) reach equilibrium. Now, stocks that are being
offered for sale at current price are sufficient enough to meet the demand.
In this situation, stock starts trading in narrow
band that indicates a solid support. This particular
trading pattern may be observed when stock has reached its bottom.
(5)
Trend Reversal Ahead
It is one of the most popular reasons to buy stock trading in very tight range.
If a stock is trading in very tight range after
a big fall then
it could be a possible
sign of trend reversal ahead.
According to a post published in a post published in Investors, when a stock is
setting up to breakout of tight trading range, normal trading should move in
tandem with stock price.
It should typically move with share price closing in upper quarter of its trading range in the direction of dominant trend. When
share price & volume move in this way, it’s a possible sign of trend
reversal ahead.
You should buy such shares
within trading range by keeping stoploss order below trading range.
(6)
Strong Price Support
It is one of the positive indications or things to know when share trading in
extremely small or narrow band. Big
institutions & smart investors often prefer to gets entry into value
picks.
According to a post published in eHow, when big institutions or
investors take a large position in a given stock, they will try their best
efforts to provide strong price support.
It
means they will provide necessary
buying support below
a certain point by stepping up buying. This strong support is mainly provided
from big investors because they know selling
begets selling.
A falling stock may accelerate more selling pressure from other small, medium to even large
investors. If it is not stopped on time then it may result in severe losses.
Thus, a strong price support
from large institutions or big investors results in formation of narrow trading
band. You should safely buy such stock with minimum
risk to
your stock investment.
(7)
Shaking Stocks From Weak Hands
It is one of the most popular reasons to buy stock trading in very tight range.
A stock may trade in narrow trading band for a period of few weeks to few months.
In such time period, it may
result in emotional
exhaustion of some new & unskilled investors.
These weak investors may start
selling their stake for
shifting their portfolio to other investment options.
In this way, big investors
get success in making
their positions even much stronger for better returns quickly. You should
never lose confidence so quickly without analyzing thebeauty
of tight trading range.
However, you should remain
invested in such stocks by placing reasonable
stoploss orderbelow its price support.
(8)
Demand & Supply In Balance
It is one of the significant & positive indications or things to know when share trading in
extremely small or narrow band. In a sharply
falling stock, every seller is eager
to sell his/her
shares at whatever prices available for execution.
However, buyers usually avoid
buying a sharply falling stock at a price asked by sellers. They usually look
for much
cheaper price to
buy falling stocks. It is the reason why tight trading ranges are not found in
falling stocks.
Similarly,
sellers are not eager to sell when stock is rising consistently. Sellers often
wait for the right price to maximize their profits.
But, a rising stock with tight trading band means buyers are eager to buy at prevailing stock price & sellers are willing to sell to meet
into the demand.
Once major sellers have
completed selling in the stock at the prevailing price then stock will show positive breakout from tight trading band.
(9)
Big Positive News Ahead
It is one of the hidden & secret reasons to buy stock trading in very tight range.
Big investors or fund houses are usually the first
one to get hints about
positive news. They have various
internal & secrets measures to assess a possible outcome of a game
changing event or big corporate news.
Big investors often takes
this unique
opportunity to
build their strong positions in a given stocks. They accumulate stocks by
keeping it in a tight trading range.
Once the big & positive news is out, the stock price will surge
significantly to higher levels. As small investors are often unaware of such
corporate actions they often ignore such stocks.
You should better buy stock
trading in narrow trading band & keep a reasonable
stoploss. You can also go for hedging your positions with options to minimize your losses in an untoward incidence.
(10)
Technical Preparation For A Big Move
It is one of the most technical & positive reasons to buy stock trading in very tight range.
Bollinger bands are a very
powerful technical indicator.
Several traders prefer
to make positions solely on the basis of Bollinger bands. These bands are
usually drawn within
& surrounding price structure of a stock.
When a stock trades in a narrow trading band then
its Bollinger bands come very close to each other with time. Traders usually
prefer to make
sell positions around higher side of
trading range.
Similarly,
buyers prefer to make
buy positions around lower side of trading range. Once a stock breakout
on upside, sellers try to close
their positions to
cut their losses.
On the other hand, opportunistic buyers jump in to buy stock after a breakout to gain profit in less
period of time. This results in huge
technical up move for
the stock.
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