facebook  youtube  blogger

What is Containment?

Containment is something akin to support and resistance. It is there but it isn't there. All of us have seen prices fall through so-called support like a hot knife passing through butter. We have all seen prices soar through resistance like a run-away balloon.

Actually, support is a place at which a lot of people are willing to buy, therefore, buy orders tend to group at support. This temporarily may keep prices from falling.

Resistance is the opposite of support. It appears at a price where a lot of sellers have grouped orders to go short. This grouping of orders tends to keep prices from rising, at least for a while.

What then is it that containment is trying to describe.

When prices remain "contained," a market can become complacent – and vulnerable to emotional breakouts. So, does containment describe an emotional state of peace and calmness? It very well may!

When prices trade in a range for an extended time, the market begins to depend on those prices. Producers and consumers both make assumptions about income and expense and plan accordingly. Sometimes those plans can include large quantities and extend well into the future, in turn generating other plans contingent on a certain level of revenue or spending. Containment consists of bracketing the highs and lows of trading ranges.

But what if prices break out of that range? Complacency gives way first to surprise, then to denial, sometimes to desperation. The latter can eventually induce panicky behavior, driving prices even further.

What is containment for a trend? Containment during a trend is indicative of steady, unemotional demand in an uptrend, and steady unemotional oversupply in a downtrend. Containment consists of moving average based indicators such as trendlines.


Sign up for our FREE weekly Chart Scan newsletter.

Master Trader Joe Ross wants you to learn trading and he created products to do just that, teach you how to trade. Go to our website to find which ones best fit your trading style.

 

Comments 2

Dale Burreson on Friday, 29 October 2021 06:56

Nicely Said.

Nicely Said.
Martha Ross-Edmunds on Friday, 29 October 2021 23:01

Thank you, Dale. : )

Thank you, Dale. : )
Already Registered? Login Here
Guest
Tuesday, 07 December 2021

By accepting you will be accessing a service provided by a third-party external to https://tradingeducators.com/

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.