Price action trading in sideways market
Page 1 of 101 123451151 ... LastLast
Results 1 to 10 of 1008

Thread: Price action trading in sideways market

  1. #1
    Educator
    Join Date
    Jun 2013
    Posts
    1,105
    Promo (¢)
    15
    Thumbs Up
    Received: 571
    Given: 191

    Price action trading in sideways market

    Hi traders! Value trader is back.

    In this artice I will share with you some robust principles for trading inside a rotational market - I use them on a regular basis in my own trading. There’s nothing new about the fact that around 70% of entire trading activity occurs within a trading range (it concern currency market, of course - for commodities and stocks distribution is pretty different). Well, it doesn’t mean that the only way to obtain 80% of winning trades is to fade the price action. But it means that to trade successfully in rotational market, trader has to know the mechanics of rotational market.

    How one can identify trading range? Some traders do very simple thing - they connect extremes between each other and make conclusion that they know where ”border” of a trading range is.

    h_1425315492_8473098_37cffa6d15.png

    But this way can be misleading - how do you know that any taken extreme is important and will not be renewed? According to my experience, it’s much easier to identify rotational center than border of the trading range.


    Rotational center:

    The best way to describe rotational center is to think of a simple moving average. Price gets back ro average, then moves away from it. Volatilty of swings to both directions tends to be similar:

    h_1425315551_5974875_83c8117a86.png

    But moving average may not be very accurate in real trading, because it performs well only in slow market with low volatility. In other circumstances it will lean to price, leaving trader confused about location of rotational center.

    In my trading, I use several clues, that help me know that I identify rotational center correctly. They are: “Emply candlesticks”, “Low volatility areas”, “Rail formations” and simple price probes. (I use M30 chart in my analysis, you should adapt principles shown below to your timeframe).


    Empty candlesticks:

    If I see candlestick with very elongated candlestick, I expect rotational center to occur somewhere within the body of that candlestick.

    h_1425315585_8774086_8f2c797812.png


    Rail formations:

    The same thing is with rail formations. If I see 2 candlesticks located close to each other, I expect rotational center to be located within this formation.

    h_1425315717_9986812_38fa94af0f.png


    Low volatility areas:

    And the most important clue is area with extremely low volatility. On my preferred timeframe (M30) it is represented with sequence of several “doji” candlesticks (having very small bodies):

    h_1425315632_7902118_70fcb7b636.png


    When I combine all clues together, I can get the idea of rotational center. And in many cases, it is not overlapping with moving average, that is, lagging indicator by its nature:





    P.S. I will keep this thread closed to comments, until description will be completed (to avoid questions, that are going to be covered later).

    to be continued...

    Not allowed!
    Last edited by Value trader; 03-02-2015 at 08:02 PM.

  2. #2
    Educator
    Join Date
    Jun 2013
    Posts
    1,105
    Promo (¢)
    15
    Thumbs Up
    Received: 571
    Given: 191
    Ok, let’s contunue.

    First of all, rotational center is a level, ignored by the majority of traders. They avoid to trade inside of the trading range - they rather try to trade near extremes. Think about simple thing - most traders in the market are momentum traders (working with the impulse) or counter-trend traders (working against the impulse).

    So, decision making process for majority of trading systems relies on some activity of price. Price breaks out from a trading range (or violates previous day’s high and low) - they buy or sell (depending on type of a trading method - momentum or counter-trend).

    But relying on price can be misleading in short-term trading. Price is simply advertising mechanism and does not necessarily reflect significant imbalance between supply and demand (that is required for elongated movement of price).

    The more astute way, according to my experience, is to rely on levels and expectations rather than on price action itself. Let me clarify it: once you want to go long, you want to see reasonable level to place your stop and decent expectations that ascending trend will prevail. In other words, you want to be one step ahead of the market, not to react.


    Trading in sideways market can exist in two ways - it can be momentum trading or counter-trend trading.


    Momentum trading:

    The idea of momentum trading is pretty simple - you buy (or sell) something when price is starting to move in some direction, getting away from some level. You operate with buy stop or sell stop orders (or market orders), trying to capture the momentum.

    The algorythm of finding momentum trade is the following:

    1. You identify rotational center of the bracket (trading range)
    2. You follow the volatility - when it goes down and price consolidates around rotational center, you prepare for making a trade.
    3. You make a trade, place you stop beyond rotational center, set your target on a border of a trading range.

    h_1425478392_2759828_82ff7d7f4e.png

    Now, as you can see, not every situation when price gets away from rotational center, is associated with extremely low volatility (that can be measured with ATR indicator). But if you place your trades near rotational center, you increase your odds of sucess.

    In example above, you see that second trade could have been executed when price crosses rotational center from above. It is also a momentum trade. In this case, market breaks this level, quickly rejects it and repositions to the lower side of the bracket.

    to be continued

    Not allowed!

  3. #3
    Educator
    Join Date
    Jun 2013
    Posts
    1,105
    Promo (¢)
    15
    Thumbs Up
    Received: 571
    Given: 191
    Now, as you could have seen from previous screenshots, there is place for trades inside of a trading range, when extremes are visible and borders are defined. But what if market auctions lower or higher, searching for the balance? In this case, trading range is not completed, we don’t yet see borders of this trading range. It can look like shown below:

    h_1426075066_9582963_684831bddb.png

    This situation is quite popular. If we don’t see borders of the trading range, we still can see the rotational center of this range, because rotational center of a given range remains in the same place, while volatility of “legs” of this range can increase or decrease.

    If you will pay enough attention to the market, you will notice that average volatility of swings to the both sides of a rotational center is equal. This observation gives us important clue - if we know rotational center and can measure average length of one leg of a range, we can extrapolate it and estimate average length of another leg.

    h_1426075118_6276744_1112320e65.png

    In example below, you see one of my recent trades from EURJPY. At the first sight, price is “oversold” and located near extreme, yet clues of rotational center appear right at the bottom of the price action. What in the world does it mean? It means that possibly, in case price violated this rotational center, it can rally lower and find elusive equilibrium at the point “B” (see picture below). It doesn’t automatically mean that price action will immediately stop in this point (and we can reverse out positions), it simply means that trading range will be complete and price action may stop for a while, rotate, correct e t.c.
    So, I’ve put sell stop order below rotational center and pretty soon this position was profitable and I was able to exit at point “B”. Could I take more? Absolutely! But I’m short term trader and want to have regular profits of modest size rather than rare profits of large size.

    h_1426075154_3317853_8fdb4de891.png

    Yet, it can’t be very easy task, because trader will inevitably face diffucult task - what trading range to calculate? There can be wider trading range and local trading range:

    h_1426075205_8706255_1c50d0f608.png

    According to my personal experience, first price hits the target for local trading range, then it can go (or not go) to the second target (of wider trading range). It’s easily explainable because it’s much easier for the market to make small swing rather than big one:

    h_1426075358_6635729_673c9fcc2d.png

    Exception is very wide trading range with small volaility. In case price gets away from such trading range, volaility can cyclically increase (and big swings appear more likely).


    ! Now thread is opened for comments, you can share your experience in trading the sideways market. But please be more specific.

    Not allowed!
    Last edited by Value trader; 03-11-2015 at 03:09 PM.

  4. #4
    Banned
    Join Date
    Nov 2013
    Posts
    14,851
    Promo (¢)
    0
    Thumbs Up
    Received: 105
    Given: 14
    To be plain with you my brother, i fear this side ways of a thing, the price cation cases i have head and i have used are for trading of the direction of the market, either up or down, to trade the sideways might be more challenging than you can expect. In his too, one need to use stop loss, the stop loss will be at the pint the market can declare another price action.

    Not allowed!

  5. #5
    Banned
    Join Date
    Jan 2014
    Posts
    7,034
    Promo (¢)
    0
    Thumbs Up
    Received: 212
    Given: 392
    Quote Originally Posted by silverlady View Post
    To be plain with you my brother, i fear this side ways of a thing, the price cation cases i have head and i have used are for trading of the direction of the market, either up or down, to trade the sideways might be more challenging than you can expect. In his too, one need to use stop loss, the stop loss will be at the pint the market can declare another price action.
    Yes right stop loss is very good tool which can save us to handle the side ways market condition well. I am a swing trader so many time I got this type of problem and it give me a lot of pain too, But since I am using less risk and proper strict stop loss in my trading getting a good trading performance. I think risk management play an very important role in our trading

    Not allowed!

  6. #6
    Registered user Hukam's Avatar
    Join Date
    Jan 2014
    Posts
    8,693
    Promo (¢)
    7,140
    Thumbs Up
    Received: 251
    Given: 504
    Quote Originally Posted by silverlady View Post
    To be plain with you my brother, i fear this side ways of a thing, the price cation cases i have head and i have used are for trading of the direction of the market, either up or down, to trade the sideways might be more challenging than you can expect. In his too, one need to use stop loss, the stop loss will be at the pint the market can declare another price action.
    Technical analysis is one of the best weapon to protect ourself in side ways market condition. I am a technical trader so sideways market condition's don't give me any bigger problem at all but if you are a swing trader or trend follower then it can give you a lot of problem. Which kind of trading method are you using in forex silver lady?

    Not allowed!

  7. #7
    Registered user lawners1791's Avatar
    Join Date
    Dec 2013
    Location
    Lawners Makesup
    Posts
    12,228
    Promo (¢)
    120
    Thumbs Up
    Received: 79
    Given: 19
    those works of the good chance as trader manages the use on appealing the deeper on appreciation as complying with the different exploration on strategy as appealing movesment on beyonds of the level with the range on limit of the extreme position with the chart movesment as confirming of the further signals on appearance as referring ones of the entry position to makes of the new order creation.

    Not allowed!

  8. #8
    Banned
    Join Date
    Sep 2013
    Posts
    27,036
    Promo (¢)
    0
    Thumbs Up
    Received: 285
    Given: 50
    Quote Originally Posted by forexlearner View Post
    Yes right stop loss is very good tool which can save us to handle the side ways market condition well. I am a swing trader so many time I got this type of problem and it give me a lot of pain too, But since I am using less risk and proper strict stop loss in my trading getting a good trading performance. I think risk management play an very important role in our trading
    Even apart from the sideways market condition, the stop loss is a very interesting tool for the management of the trading account of the trader. It is never a good thing when the trader is trading without the use of the stop loss. And either price action trading system or another trading system, the stop loss would still function well because it is needed.

    Not allowed!

  9. #9
    Registered user Quid's Avatar
    Join Date
    Feb 2014
    Posts
    5,903
    Promo (¢)
    -75
    Thumbs Up
    Received: 29
    Given: 12
    Price action in sideway market with low liquidity makes the traders get the good profit.They are making the trades and following the price action they make for their profit too.The traders are more successful because of their trades and seeing trading with the following market trend to be profitable for them.They are making the profit from the market with good market trading and get good profit too when the market with the profit can be good for them with price action trading.

    Not allowed!

  10. #10
    Registered user
    Join Date
    Feb 2014
    Posts
    5,053
    Promo (¢)
    165
    Thumbs Up
    Received: 59
    Given: 19
    Read some books of the price action ensures that the shapes of teh candles ticks can tell us every thing aboput what is going on in the market . and what positive news and negative came , what the influences of ceratin meeting or letters said soon . shapes of candle expresses every thing about the prices of any currency

    Not allowed!

Page 1 of 101 123451151 ... LastLast

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •