Forecasting Price Range with SBER PEC

What is SBER PEC?

Price Expansion and Contraction (PEC) is one of the proprietary methods used by Sachin Bhatia Equity Research (SBER) to forecast the trending and non-trending markets. The non-trending definition here includes a weak trend (without momentum) as well as range-bound price action. The PEC helps identify expanding and contracting price ranges over the period.

For analysis, 2 lines are used:

  • Blueline – PEC line
  • Red line – Critical PEC breakout level for expansion or contraction. Also known as Reference Line for Decisions or Ref Line

Estimating Price Range with PEC

When the reference line is rising and the PEC line falls below the rising ref line, the cross down point provides a piece of good information on the range within which the stock is expected to operate until the next cross over of the PEC line above the ref line.

If the value of the ref line is X at the time when the PEC line cross below it, provided the ref line was rising this time, the stock is expected to be in the range of 3X.

NIFTY Example

In the chart shown above, the NIFTY PEC line (48.42) fell below the rising ref line (49.42)

X = ~50

3X = 150

Closing price of NIFTY candle = 18285

The expected range within which NIFTY is likely to remain until PEC rises above the ref line:

Upper bound: 18285 + 150 = 18435

Lower bound: 18285 – 150 = 18130

Range: 18130 to 18435

What if the range is broken

If the range is broken, it has a high probability to re-enter the range and becomes an opportunity for adjustment or accumulation or distribution. In such an instance, a stop is placed at X points far from the bound.

Who can use this method

This method is helpful for both option buyers and writers. The writers know the range outside which the break-even must be kept for their strategy. The buyers know the entry points for quick trades.

How to get access to SBER PEC Tool

Access to the SBER PEC tool is available for SBER One Members. Click here to join the membership or read more here.

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