Because there are few intraday retracements, small losses can easily get out of hand. The worst catastrophes come from trying to average losing trades on trend days. Fortunately, it is possible to identify specific conditions that tend to precede a trend day. Because this can easily be done at night when the markets are closed, a trader can adjust his game plan for the next day and be prepared to place resting buy or sell stops at appropriate levels. In general, price expansion tends to follow periods of price contraction, the phenomenon being cyclical.
Volatility is actually more cyclical than is price.
In turn, the increase in price momentum attracts new market participants, and pretty soon a vicious cycle is created. Local pit traders, recognizing the one-way order flow, scramble to cover contracts. The market tends to gain momentum rather than to check back and forth. We can tell when the market is approaching the end of contraction or congestion because the average daily range narrows. We know a potential breakout is at hand.