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Thread: Price action trading in sideways market

  1. #1
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    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.

    Attachment 12288

    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:

    Attachment 12289

    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.

    Attachment 12290


    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.

    Attachment 12292


    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):

    Attachment 12291


    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...

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    Last edited by Value trader; 03-02-2015 at 07:02 PM.

  2. #1461
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    Some of the likely challenges that you will encounter as you are planning to trade within a sideways market is lack of direction, and many times the volume of activities will be low, as long as these two characteristics are in the chart, you have two options, either to trade from bottom and tops or think about exiting your current running trades, whichever you prefer.

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  3. #1462
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    The lack of momentum within the market that is going sideways is the major challenge, it is also not entirely the truth that we cannot earn under such circumstances, the chances will be slimmer I agree, sideways market have some special methods that works for it, am indicator that we cannot use here will be the moving average, you will not even get anything concrete once it is being used for trading this market types.

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  4. #1463
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    The sort of trading strategy that I have been making use of hasn't been able to have allowed me trade on the sideways market, with that, I have always made sure that I am always having my trade on the trend trading market, that has been the way I have always been able to avoid bad trades and always take on good profitable trades that has a lot more potentials to taking me to winning.

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  5. #1464
    Rookie layigold's Avatar
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    Sideway market is difficult to trade for those who are trend traders but that does not mean it can not be traded at all. Market moves within a predefined range and you can look for buy opportunity as price approaches the lower band of the range and you may look for sell opportunity as the price moves near the ceiling of the range but when there is no any signal to either buy or sell, it is better to sit on your hand because being neutral some time could be a position to be taken by a trader. That is consider better option than to force a trade and end up losing money.

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  6. #1465
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    If we spend our most of time in this market so we learn about the working in side way market and also we have working in trend with same potential it is a matter of understanding , some trader consider it well when there is side way market and we are trading with and try to catch big pips in market .

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  7. #1466
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    You need to know what is in for you in the market, the way you want to trade and then what will work for you, all these put together will be used as a means and method by which you can make use of in becoming a good profitable trader on the other hand, side ways market is what a lot of traders has been avoiding because of the fact that when the market is on the side way, it hardly give out good signals.

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  8. #1467
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    I have always feared the sideways market for a very long time because i have always thought that consolidation is a moment we must wait until there is a breakout in the market . Your proper analysis and the few charts that were given to support your analysis has done most of the explanation that i needed to know about how best to trade the sideways market , and from what i see here, it is a very good way to make money from the market if most of the rules you mentioned here are well followed.

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  9. #1468
    Trader cutiekc's Avatar
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    On my own facet, I am a price action trader and I can say that I have gotten to have mastered the use of the support and resistance market movement, therefore, I know what the market is all about and then know how to place my trades actually, I know that the side ways market or not, I can make good profitable trades once I have taken time to make good analysis.

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  10. #1469
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    If you are trading with the use of the price action, more like getting to trade with the support and resistance on the chart. I am sure that you will not be looking for a side ways market or trending market, that way, one will only be after the signals that has good clarity of support and resistance and then take the trade, that is basically what I do now.

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  11. #1470
    Rookie layigold's Avatar
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    Sideway market can be traded profitably but you need to know that a break out may occur at any point in time and that is why you must manage the risks of trading and then use tight stop loss.You need to mark out the levels that trap the price and then look for price action buy signal as the price hits the floor of that range. On the other hand , you look for price action sell signal as the price hits the ceiling( the upper band ) of the range. Either a trending or range bound market, trader can still make money provided he knows how to go about trading.

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