Trader’s Narrative

I’ve already written about the unfolding Afinsa and Escala saga so I won’t go into it again. Today, trading was halted in Escala and the company released an announcement saying that they have not been named in any legal proceedings out of Spain and it is business as usual for them.

It’s not surprising then that, driven both by the announcement and by short covering, the shares zoomed higher.

I wanted to feature its intraday action because it is a great example of the principles of expansion and contraction in technical analysis. As you can see, after the halt was lifted and the shares started trading again, there was a very wide range up candle (expansion).

But immediately you can see weakness in that wide range candle: the long upper tail. And so the contraction of price began. It lasted for an hour as price was squeezed tighter and tighter (red arrows). Then just before 1 pm, price shot out of the coil and expanded again. This time, even further than previously.

Price expansion and contraction are key concepts. As you’re watching price action, try to watch for them and soon you’ll find that you’re beginning to anticipate them.

Risk is the most important element in trading. By watching for expansion and contraction, we can pinpoint potential entries that allow for risk to be clearly defined.