$$\sqrt{10000}$$ $$ = 100 $$

$$\sqrt{100}$$ $$ = 10 $$

10000 / 100 = 100

100 / 10 = 10

One of the first challenges faced in devising a probable range for forecasting prices is the fact that small numbers are inherently more volatile due to square roots.

Prices tend to move in a maximum daily range that equals the square root of the price. So, if some index is valued at 10000 you should expect it will move a maximum of 100 either up or down on a daily basis.

A stock valued at 100 will move up or down (let's assume from the close) 10. While 10 points on the face of it doesn't sound like much it represents a 10% move which is significant.

On the other hand, a 100 point move on an index valued at 10000 represents only 1%

The numbers, along with risk and reward, becomes more challenging for an investor of penny stocks. For example:

$$\sqrt{2}$$ $$ = 1.414 $$

So, if you're buying a stock valued at 2 then you shouldn't be surprised if it moves as high as 3.41 or 3.42 or down to 0.58 or 0.59 - that's about a plus or minus 70% potential move on a daily basis.

Contending with square roots is only the beginning. There are many other factors to consider, including:

• Volatility (possibly driven by unexpected events)
• Support and reistance levels
• Creating a range wide enough to capture the daily range of price movement, but not so wide that it proves to be useless
• Accounting for natural growth and contraction of markets to higher or lower energy levels

In periods where volatility is low, investors may not like seemingly wide probable ranges. By the same token, should volatility spike and blow out a probable range that is too narrow along with their stops, they probably won't like that either.

Current probable ranges under development are:

$TLT

$WTI

$DJIA / #DOW

$SPX

$DXY

$GOLD

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