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I put together some charts Thursday and Friday last week, and what I’m seeing right now has me excited about the opportunities ahead. The reason is simple — the patterns forming across major indexes keep tightening, and we’re looking at a range that gets tighter and tighter as more stocks get stuck inside it.
That kind of setup doesn’t come around often, and when it does, it can create excellent conditions for certain types of trades.
The market’s doing something interesting — and if you know how to read it, the next few weeks could set up well for a particular strategy I want to walk you through today.
Here’s what’s happening: I’m expecting a lot of movement and a lot of volatility, but I’m not expecting the market to go anywhere directionally.
Now, I know that sounds contradictory at first. You’re probably thinking, “Wait, Roger — how can we have big movement but no direction?”
Let me explain…
You can be choppy without breaking out of a range. A lot of traders don’t see it that way, but this kind of consolidation is what creates opportunity for the right type of trade.
The Triangle Pattern That Changes Everything
Take a look at what’s forming across multiple indexes right now: triangle patterns.
A triangle pattern is a range that gets tighter and tighter as price compresses. And a lot of stocks and indexes are stuck in that pattern right now.
What does that mean for us?
I believe we can remain stuck in this pattern for the next few weeks. That might frustrate directional traders who are looking for big breakouts, but for traders who understand how to work within a range, this is ideal.
Directional strategies aren’t necessarily wrong here — in fact, they still work and they work well most of the time. They can succeed 19 out of 20. But in this environment, they’re not the most efficient tool because the structure isn’t giving us momentum to push through major levels.
The market’s going to thrash around. It’ll move up, it’ll move down, but it’s likely to stay contained within a tightening range. That’s the nature of triangle consolidation.
Why This Sets Up Perfectly
Earnings are starting, but bank earnings don’t drive price in terms of momentum all that much. So while we’ll get noise, I’m not expecting the kind of sustained directional moves that breakout traders need.
Instead, this is a perfect condition for a special type of trade — one that thrives on volatility without requiring the market to pick a direction and stick with it.
When the market’s locked in this kind of pattern, you can take advantage of the chop. You can collect premium while others sit on their hands waiting for clarity. You can position yourself to profit from the movement without needing to guess which way the market’s headed next.
And you do that with credit spreads…
Now, why credit spreads? Because they let us play this game with our eyes wide open. We position ourselves strategically, close but not too close to the current price. It means we can collect a nice, juicy premium — I’m talking 40 to 60% of what’s at risk.
The beauty here is risk management. With credit spreads, you’re not out there taking blind swings. Every trade is hedged — you know your risk and your reward right up front. It’s all about leveraging what the market offers us. No need to force directional plays when the structure isn’t there. Instead, we adapt, we capitalize on the chop, and keep that cash flow coming.
The key is recognizing the setup for what it is. Don’t fight the consolidation. Don’t force directional plays when the structure isn’t there. Instead, adapt your strategy to match what the market’s giving you.
And right now, the market’s handing us a roadmap. The triangle pattern is tightening. The volatility is there. The consolidation is likely to continue.
That’s the environment I’m watching — and it’s the environment where the right strategy can shine over the next few weeks.
I hope that helps!
Roger Scott
Roger Scott Trading
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