Trading Price Action Trends

Chapter 26

Stairs: Broad Channel Trend

Primary characteristics of stairs days:

• A stairs day is a variant of a trending trading range day where there are at least three trading ranges.
• The day has broad swings, but trending highs and lows.
• Because the swings are large, traders can usually place trades in both directions, but they should try to swing part or all of their with-trend trades.
• Almost every breakout is followed by a pullback (a breakout test) beyond the breakout point, so that there is some overlap between consecutive swings. For example, in a broad bear channel, every breakout to a new low is followed by a rally that goes back above the breakout point but stays below the most recent swing high. However, there is sometimes a swing or two that will extend above the prior swing high by a little. This will make some traders wonder if the market is reversing, but the trend will usually soon resume.
• If each breakout gets a little smaller than the prior one, then this is a shrinking stairs pattern and a sign of waning momentum, which can lead to a larger correction.

When a market has a series of three or more trending swings that resemble a mildly sloping trading range or channel, both the bulls and the bears are active but one side is exerting somewhat more control. Each pullback retraces beyond its breakout point, creating overlap between each breakout spike and the following pullback. Two-way trading is taking place within the broad channel, so traders can look for entries ...