Identifying Contraction

There are no set rules for identifying contraction but some properties are available, that indicates or suggests that the contraction may start;

When prices are far away from MA
Suppose a stock have in a strong uptrend in EOD Chart. In 60 min chart, if the 20 period
MA is far below from the prices then there is a strong chance to begin a contraction.

After a rally of 30-40% in Stocks and 20-25% in Index
Prices have a tendency to trading in a range after a rally.

When volatility are its low
A high volatility in a stock suggests the movement will be more and a low volatility suggest the movement will be less in price.

When volumes are decreasing
Decreasing volumes in a stock suggest that the interests of traders are coming down in a particular stock. This will lead a less movement of the prices and a range may visible.

This post has been adapted from a  presentation by Mr Sunil Miglani, made at ATA on July 14.