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It is important to take into account big picture context when day trading. For instance, a new breakout has a higher probability for continuation than stocks trading within a range.

This doesn’t mean stocks within a range can’t breakout with strong follow through on any given trade, but the expectation for a breakout is low with increasing likelihood of a breakout the longer the range continues.

Currently $FB is trading within a short term range, or exhibiting price contraction. The last 5 days of trading is contained within the single red price bar of 1/14/20, equating to a range between 222.50 and 219.00.

After a red day yesterday, price opened today near the bottom of the range (219.67) and then started higher to blue line resistance (221.50) where a Price Flow fail pattern sell signal developed (Sell at 220.49, Arrow at entry).

While there is nothing wrong with taking this trade given price flow price action, you must take into account that price is in contraction which more than likely will bring in responsive buying lower in the 219 area vs. a breakout and continuation lower below 219. (A breakout lower below 219 was more likely to develop right near the open, but failed to do so).

Therefore, you had a high probability price target (white line) at the intraday low of 219.67, and a low probability breakout below the bigger picture range low of 219.

Given the odds, it was prudent to either take profits at the first target, or at a minimum scale out at the target area to set up a no risk trade. After exiting slightly below the target (white line) for a small $$ gain at 219.45 (Arrow 2), price met responsive buying as anticipated and moved higher.

Trading within a range carries a unique set of expectations with regard to follow through. A breakout from a range can be powerful and lead to powerful trades for days to come. But until the breakout occurs, you need to trade nimbly within a range in order to control risk in the tightest manner possible.

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