Wide-Ranging Days

Wide-ranging days describe the price range of a stock on a particularly volatile day of trading. Wide ranging days occur when the high and low prices of a stock are much further apart than they are on a typical day. Some technical analysts identify these days by using the volatility ratio.

Wide ranging days have a true range that is larger than the surrounding days, and wide-ranging days usually predict a trend reversal. Extreme wide ranging days signal major trend reversals, while less extreme wide ranging days signal minor reversals.

The average true range provides a way to compare the trading range between multiple days by looking at the difference between the close of the previous day and either the high or low of the current period depending on what’s greater. The true range for a given period is the greater of the high for the period minus the low for the period, the high for the period minus the close for the previous period, or the close for the previous period minus the low for the current period.

The average true range is usually a 14-day exponential moving average of the true range, although different trades may use different periods. An exponential moving average is a type of moving average that places a greater weight and significance on the most recent data points. This is also referred to as the exponentially weighted moving average.

The volatility ratio can be used to identify wide ranging days using a technical indicator. In essence, this automates the process of finding wide ranging days and makes it possible for traders to easily screen for opportunities rather than simply looking at charts.

The volatility ratio is calculated by dividing the true range for a given day by the exponential moving average of the true range over a period, which is usually 14 days. In general, wide ranging days occur when the volatility ratio exceeds a reading of 2.0 over a 14-day period. Traders may use volatility ratios in their stock charts when looking for potential reversal opportunities.

Wide ranging days occur when the price range of a particular stock greatly exceeds the volatility of a normal trading day. Often times, these days are measured with the average true range and analysis is automated using the volatility ratio. Wide ranging days usually predict trend reversals, although traders should confirm reversals using other technical indicators and chart patterns.