Stock trading in a narrow band often creates curiosity in traders. They often look for reasons to sell stock trading in very tight range. Equities may trade in abnormally narrow or very tight range as compared to its normal trading range.
This tight trading band is usually irrespective to overall market or stock index movements. A given stock may trade in very tight range from few days to few weeks to even few months.
It can be a good or bad 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 negative indications or things to know when shares trading in extremely small or narrow band:
(1) Big Institutional Selling
It is one of the most significant reasons to sell 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 sell order at market price or limit price to distribute 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 sell order also resist public shareholders from buying their stake. Small investors usually lose confidence in buying or holding shares after seeing bulk selling orders.
They can’t resist themselves from selling their own stake to prevent losses. Therefore, it results in the formation of tight range patterns before commencing a big & volatile downfall.
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