WHAT IS 'Coiled Market'

A coiled market is a market that has the potential to make a strong move in one direction after being pushed in the opposite direction or held flat. The idea is that if a market should be headed in one direction due to its fundamentals but is pushed in the other direction, it will eventually make a strong move in the original fundamental direction. This coiled move will often be more substantial than what might have been the case if it had gone in the expected direction to begin with.

BREAKING DOWN 'Coiled Market'

Coiled markets often arise when the market has been held down artificially. This happens in commodities markets, such as gold and silver. Investors looking to capitalize on coiled markets will use both fundamental and technical analysis to identify markets or specific equities that exhibit the characteristics of a coiled market. 

Technical analysts refer to triangle patterns on charts as coils. As the upper and lower parts of the triangle move closer together and the more psychological energy coils up like a spring inside the triangle as the lines move closer together, the bigger the breakout will be theoretically. At some point, prices will move outside of the triangle's boundaries. The question is whether they'll move higher or lower.

Example of a Coiled Market

A good example of a coiled market is a government that intervenes in its currency. Market observers often point to China when talking about the potential for a coiled yuan market. That is because the Chinese government has a penchant for putting certain controls on the yuan, namely keeping it artificially low relative to fair market values. If the government were to lift the controls it placed on the currency, the yuan would likely increase at a rapid rate. 

However, the rebound on a coiled market is not always higher. The market for the pound became coiled in the other direction leading up to September 16, 1992, otherwise known as Black Wednesday. That day, a collapse in the pound sterling forced Britain to withdraw from the European Exchange Rate Mechanism, or ERM. The ERM was introduced in the late 1970s to stabilize European currencies in preparation for the Economic and Monetary Union and the introduction of the euro. Countries seeking to replace their currency with the euro were required to keep the value of their currency within a certain range for a number of years.

RELATED TERMS
  1. Descending Triangle

    A descending triangle is a bearish chart pattern created by drawing ...
  2. Floating Exchange Rate

    A floating exchange rate is a regime where a nation's currency ...
  3. Technical Analysis of Stocks and ...

    Technical analysis of stocks and trends is the study of historical ...
  4. CNY (China Yuan Renminbi)

    The CNY, or the Chinese Yuan Renminbi, is the general term for ...
  5. Currency Peg

    A currency peg is an exchange rate policy that "pegs" a country's ...
  6. Currency Band

    A currency band represents the price floor and ceiling that the ...
Related Articles
  1. Trading

    Triangle Stock Breakouts to Kick Off 2016 (GIS, SEM)

    These stocks are near triangle chart pattern breakout points, presenting trading opportunities to kick off 2016.
  2. Trading

    Stocks Nearing Triangle Breakout Levels (TIVO)

    Triangles breakouts can provide a risk-controlled way to participate in the next wave of a stock's trend.
  3. Trading

    Four Triangle Patterns to Keep An Eye On

    These four stocks are consolidating in triangle patterns following big moves. A breakout could kick start another significant price trend.
  4. Investing

    Stocks with Breakout Potential (MDT, SLM)

    Stocks are moving within narrowing price bands and are poised for a breakout.
  5. Investing

    ETFs with Major Breakout Potential (ASHR, IEMG)

    These ETFs are moving in price patterns, that when broken, could set up big trending moves.
  6. Trading

    Watch for a New Year Breakout in These Stocks (DHR, FIS)

    The narrowing price patterns in these stocks can't last for long. Watch for a breakout.
  7. Trading

    Awaiting These Major Breakouts (DIS, NFLX)

    These three stocks are moving in patterns that can't last. Watch for the breakout.
  8. Trading

    Russian Stocks Heading Toward Breakout Levels

    After strong rallies in 2016, Russian stock ETFs are consolidating and could break out again. (RSX, RSXJ)
  9. Trading

    Waiting on a Breakout in Banking and Financial ETFs

    These financial ETFs are stuck in a triangle pattern after a strong rally. Watch for the breakout, in either direction. (KBE,IYG)
  10. Investing

    These Stocks Are Sqeezed and Ready Pop (PE, ALK)

    With the price action being compressed in these stocks for some time now, the chance of a breakout is increasing.
RELATED FAQS
  1. How did George Soros break the Bank of England?

    George Soros pocketed $1 billion by betting against the British pound, cementing his reputation as the premier currency speculator ... Read Answer >>
  2. How is direct cost margin calculated?

    Find out how to calculate the direct cost margin, including how it is used in corporate finance as an indicator of operational ... Read Answer >>
  3. What is the difference between fundamental and technical analysis?

    Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at ... Read Answer >>
  4. What is the difference between fundamental and technical analysis?

    Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at ... Read Answer >>
  5. How are international exchange rates set?

    Knowing the value of your home currency in relation to different foreign currencies helps investors to analyze investments ... Read Answer >>
  6. When and why did the euro make its debut as a currency?

    On January 1, 1999, the European Union introduced its new currency, the euro. Learn more about its history. Read Answer >>
Hot Definitions
  1. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  2. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  5. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
  6. Ratio Analysis

    A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.
Trading Center