One of the most recognizable chart patterns is the trading range. When the price of a stock stays within a horizontal price band for some time, it builds energy. Eventually, either the bulls or bears succeed, causing a breakout and a significant move. Ranges provide an advantage in that when the breakout occurs, it allows traders to get in at the start of a potentially big move. That can mean big profits. The main disadvantage is that ranges are notorious for having false breakouts. This can widdle away capital before a big move ensues. The following stocks have been trading in a range recently, and have already broken out or are very close to it. For stocks that haven't broken out yet, wait for the breakout to occur before anticipating when, or in which direction, a breakout will occur.

SEE: The Anatomy Of Trading Breakouts

Viacom (Nasdaq:VIAB) has been in a trading range for all of 2012. During this year, Viacom has had a low of $44.89 on February 2, and a high of $49.85 on May 3. These levels mark the extremes of the range, and also potential breakout points. If the stock breaks to the downside, the target is $40. An upside breakout is less likely at this time, but if it occurs, the target is a $54.75. Volume should increase on a breakout in either direction. If it doesn't, the breakout is more likely to be false.

Dillard's (NYSE:DDS) has been in a short-term range since the middle of May. On May 11 the stock put in a 52-week high at $72.46, and has traded below that level since. As for support, an intra-day low from May 8 at $63.73 has so far held off further declines. These two levels are the ones to watch, because if either is penetrated, it means a potential breakout. Dillard's stock is currently trading near the lower end of the range; if a downside breakout occurs, the target is $55. While it is a ways away at the moment, an upside breakout could also occur. If it does, the target is $81. No matter which direction the breakout occurs, volume should increase when the breakout takes place. This confirms the breakout and makes it more reliable signal.

SEE: Technical Analysis: Support And Resistance



PerkinElmer (NYSE:PKI) has been in a range since the start of February, although, the range has been slightly expanding. The expanding range means multiple false breakouts have occurred for those using horizontal support and resistance levels. On June 26 though, the stock made a thrust lower which is likely a breakout to the downside. The prior low of the range was $25.10, set on June 4. The target for this downside breakout is $22. Ideally the stock should see a continued increase in volume as it declines. If it does not decline and instead moves back into the former range, this would indicate that the recent move lower was a false breakout. The top of the range is at $28.24, and while unlikely, if a move above that level were to occur, the target is $31.25.

SEE: Support & Resistance Basics



As of the June 26 close at $95.60, Roper Industries (NYSE:ROP), is very close to support and a potential breakout to the downside. Range support developed in early April just above $95. On several attempts since then the stock has come very close to $95, but has not been able to break through it. If that level is penetrated, a further drop could materialize quickly, especially if accompanied by increasing volume. The target is $86.50. If support holds, the stock could head back toward the top of the range at $103.50, which is also the 52-week high. If that high is broken, it signals an upside breakout and a target of $112.



The Bottom Line
Trading a range breakout takes patience. Wait for the breakout to occur and don't attempt to anticipate the breakout direction, or when it will occur, in advance. Once the breakout occurs, step in and trade. False breakouts do occur quite often, which means sometimes multiple entries are required before catching a significant move. If a stock breakouts out and then moves back into the range, it is likely a false breakout and the trade can be exited. Wait for another opportunity to get in. The support and resistance levels of the range are key levels and should be watched closely. Stops don't need to be big, but should control risk while still allowing some room for the stock to move.

Charts courtesy of stockcharts.com

At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Charts & Patterns

    How To Use Volume To Improve Your Trading

    The basic guidelines to analyzing volume may not apply in all situations, but overall, they can help direct entry and exit decisions.
  2. Trading Strategies

    4 Common Active Trading Strategies

    Active trading entails buying and selling securities with the intent of profiting from short-term price movements.
  3. Chart Advisor

    3 Charts That Suggest Now Is The Time To Invest In Real Estate (VNQ, SPG,PSA)

    Real estate assets have some of the strongest uptrends around. We'll take a look at three candidates poised for a move higher.
  4. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
  5. Term

    Swing Trading Risks and Rewards

    Swing trading is the attempt to capture gains in a stock within one to four days.
  6. Active Trading Fundamentals

    New Traders: Trade the Market in 5 Steps

    New traders shouldn’t throw money at securities without knowing why prices move. Follow these five steps to tilt the odds in your favor.
  7. Chart Advisor

    Watch For a Bounce in These Emerging Markets (BRF, PEK)

    While downtrends are clearly in control of the direction of many emerging market ETFs, short-term indicators suggest a bounce higher could be in the cards.
  8. Investing Basics

    Valuation Models: Apple’s Stock Analysis With CAPM

    The capital asset pricing model, or the CAPM, estimates the expected return of an asset based on the systematic risk of the asset’s return.
  9. Stock Analysis

    Will "FANG" Stocks Outperform in 2016?

    Facebook held the most bullish accumulation-distribution pattern into year’s end, telling investors to focus on this issue in 2016.
  10. Chart Advisor

    Watch For Stock Breakouts Here

    Four stocks with potential breakouts across various time frames and pattern.
RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  3. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  6. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center