Currently, the major indices are trading near the lows of December or, in the case of IWM, near the bottom of its trading range, around $208.
With 2021 wrapping up, there is still a lot of uncertainty in the market. The past month has been tough from a trading standpoint, with quick price reversals paired with large range days. As the major indices have trouble either breaking through the lows or clearing the highs, many people are adjusting their trading styles or waiting on the sidelines for better opportunities. With that said, if choppy price action continues, what is the best way for traders to adjust their current trading style?
One way to shift styles is by looking to range trade, which is useful in choppy and questionable market environments. Once a range has been identified, for instance in the case of IWM (the high of its range is around $232 while the bottom is $208), we can begin to look for short entries near the tops and buy signals near the bottom.
Additionally, range trading is effectively taking entries in areas where you will know if you are wrong quickly, allowing you to take small losses if need be. The main idea when range trading is to stick to the edges of the range since, most of the time, price action in the middle can be hard to analyze.
With that said, while IWM looks the best to range trade at the moment, other major indices could be entering their own ranges as they are beginning to trade more sideways. Therefore, keep the range in mind through this trading week, but also note that, with Christmas almost upon us, market participation is waning which can make the market more volatile.
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- S&P 500 (SPY): 448.92 low to hold.
- Russell 2000 (IWM): 208 bottom of range to hold.
- Dow (DIA): Held the 200-DMA at 346.37.
- Nasdaq (QQQ): Needs to get back over 382.
- KRE (Regional Banks): Watching for second close under the 200-DMA at 67.96.
- SMH (Semiconductors): Watching to hold the 290.07.
- IYT (Transportation): 261 pivotal.
- IBB (Biotechnology): Still needs a close over the 50-DMA at 154.92.
- XRT (Retail): Watching to find support.
Assistant Director of Trading Research and Education