Stock volatility is the beauty of stock markets. But, sometimes shares may trade in a narrow range. You might look for reasons to buy stock trading in very tight range. Equities may trade in abnormally narrow or tight range as compared to its normal trading range.
This tight band is usually irrespective to overall market or stock index movements. A given equity may trade in very tight range from few days to few weeks to even few months. It is often considered as a good trading opportunity with clearly defined risk levels.
This low risk is due to the fact that if any initial move fails then price doesn’t have to go very far back. Therefore, you can easily exit your positions quickly without negligible losses. Here are 10 positive indications or things to know when share trading in extremely small or narrow band:
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(1) Big Institutional Buying
It is one of the most significant reasons to buy stock trading in very tight range. According to a post published in Investors, big institutions or fund houses or even big investors are often the key players behind very tight band.
They can’t place a single huge buy order at market price or limit price to accumulate shares. It is due to the fact that such huge quantity of shares is usually not traded in a given company in a single day.
Additionally, placing a single huge order also resist public shareholders from selling their stake. Small investors usually gain confidence in buying or holding shares after seeing bulk buying orders.
They prepare themselves physically, financially or even emotionally for holding their stake for more time. This results in the formation of tight range patterns before commencing a big & volatile move.
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