Range compression
What does it mean when a market's weekly high-to-low span keeps shrinking, and why do some traders treat it as stored energy?
In plain words
Range compression is a period in which the gap between a market's highest and lowest prices narrows, often with smaller hourly moves and lighter volume. Traders compare the current span with earlier spans to see whether trading has quieted.
Why it matters
A narrow span with thin volume can mean buyers and sellers are waiting rather than fighting. Some read that quiet as energy building towards a large move, though the span itself does not say which direction or when.
In a real week: BTC, week of 11 February 2019
In the week of 11 February 2019, BTC's span was 3.7%, its realised volatility 20.3% a year, and its largest hourly move -0.91%. Volume was 0.52 times its prior 12-week average. The close of 3667.58 sat at 75.4% of the week range, in the upper third, after a return of -0.33%. Meanwhile ETH's weekly return beat BTC's by 7.23 points.
A common mistake
Assuming compression guarantees an imminent, large move in either direction. A quiet week can be followed by another quiet week, and the range says nothing about direction.