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Trading Range Expansions
10/11/2011 1:30 pm EST
Trader and author Adrian Manz covers range-expansion strategies based on price and volume and how he analyzes multiple time frames to find opportunities in specific sectors of the market.
Adrian Manz joins me today. Adrian, good to see you. You wrote a book, Trade Secrets, tell me some secrets.
Well, it is the first book in 13 years, or nine years anyway, since the last revision of Around the Horn, and it is not just an Around the Horn II kind of a thing. It is a totally different way of approaching volatility in the market, so it allows us to capitalize on volatility wherever it exists and just gets us in front of the opportunity in a bunch of different time frames.
Is this is a change in strategy or just a massage of the strategy?
Well, it is massaging one of the strategies in Around the Horn. It is an expansion of range and expansion of volume strategy, and then we have gone and vertically integrated this through the markets; in part because we are managing money and it allows us to put more money to work because we are going into weekly and monthly time frames holding some much, much longer positions.
The essence of how we put together a position is still the same. We are looking for natural support and resistance; we are looking for breakouts that occur on heavy volume on expanded range; lots and lots of confirmation in everything that we do, just the same way that there is in our intraday trading.
Volatility, what role does it play?
It is the name of the game, right? It is expansion to range in volume is really my measure of volatility since I don’t use any indicators or statistics really anymore in trading. We are both statisticians, but we don’t really apply the math that often.
I think it is easier to eyeball a chart than to look at what the sector is doing and look at what the market is doing; to see if the pieces of the puzzle fit together; that is much easier in terms of planning the actual trades than it is to sit down and say well we are going to do an analysis of covariance and figure out what all these things mean in relationship to each other.
Fourteen years later, it is just as easy to look at the chart and say, “I think I know what is going to happen.”
It is still kind of bottoms up, instead of top down?
Right. We start with the stocks and look for the set-ups and the individual stocks and then go and look for confirmation as to what the sector is doing, what the market is doing.
Put a little bit of light on where the set-up might have come from and then if all the pieces fall into place, we take the trade, and if they don’t, we move on to the next opportunity.
What sectors are moving?
Right now, the focus for us is on energies, health care. Healthcare was the worst-performing sector last year; it was the best performing this year. We have had a lot of long side trades in health care earlier in the year and now we have a lot of short opportunities there.
Is it more defensive now?
In terms of setting up our trading, we are still trying to get in front of the opportunity and figure out what is going to roll over and what is going to give us those set-ups that we have always been looking for.
If we see an exhaustion pattern in the markets, then we will try to get in front of it and see if we can’t get there before everybody else does.