If you’re a range trader, you might have sometimes found it hard to figure out the direction of the breakout. You can’t be successful in range-trading without being good at reading the direction, and range-bound stocks do eventually break, giving you spots to potentially get long or short in a stock.

Generally speaking, it takes some sort of catalyst to break a stock out of its trading range.

Consider this example, in the chart of Puma Biotechnology Inc. (PBYI).

Source: TradingView

In the chart above, PBYi was trading in a range, and it was hard to identify a clear direction in the stock; notice that the moving averages don’t show a clear trend, and PBYI is just in between the range.

However, in May 2017, Puma had a positive catalyst, a reason potentially to break out of its trading range. The U.S. Food and Drug Administration Oncologic Drugs Advisory Committee voted 12 to 4 and recommended the approval of PB272, or neratinib, for the treatment of certain forms of early-stage breast cancer. This vote was based on the review of the company’s clinical development program, which included 11 trials in breast cancer. Phase III results were promising, and the results and the studies were statistically significant.

If you got long the stock off of this catalyst on the range breakout, you would have profited significantly. Here’s how the trade would have turned out.

Source: TradingView

Final Thoughts

It’s hard to identify the direction of a breakout, in the absence of a catalyst. Focus on range breakouts that had some company news, earnings or corporate actions — or look for upcoming announcements/potential catalysts when you see a range-bound stock — and you may come away with a better idea of what’s next for a stock.


   Jason Bond runs JasonBondTraining.com and is a swing trader of small-cap stocks.

Author: Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of RagingBull.com and the RagingBull.com Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

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