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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. #1661
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    We have to recognize our trading style and recognize which chart patterns and indicators we can use and find hgh probability setups. To me trending market is more preferable to trade than the sideways market however it depends on the traders style of trading. First thing is trader should be in a position to analyze the market and analyze the possible trends.

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  3. #1662
    Trader Azis Muslim's Avatar
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    Quote Originally Posted by silentsaumya View Post
    We have to recognize our trading style and recognize which chart patterns and indicators we can use and find hgh probability setups. To me trending market is more preferable to trade than the sideways market however it depends on the traders style of trading. First thing is trader should be in a position to analyze the market and analyze the possible trends.
    Sideways market has its own favorite traders who like to stay safe and make average amount of profits within short period. Those traders are typical who likes to stay safe in market without participating in market trend or high volatility. A lot of reasons are behind it like losing from volatile market, can not find the best timing during its high volatility, and traders can not manage their stop loss and take profit in long term strategy. So they decide to trade with sideways with smaller risk but medium earning.

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  4. #1663
    Trader Toyen's Avatar
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    No matter how good i could think of myself when i trade, i will not be trading the market with the sideways manner, that is the absurd manner which can make traders to lose. To trade the market on the sideways manner gives traders the ability to trade the in the abusive market, anything can results from that. That thing is mostly negative to trading.

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  5. #1664
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    Quote Originally Posted by Azis Muslim View Post
    Sideways market has its own favorite traders who like to stay safe and make average amount of profits within short period. Those traders are typical who likes to stay safe in market without participating in market trend or high volatility. A lot of reasons are behind it like losing from volatile market, can not find the best timing during its high volatility, and traders can not manage their stop loss and take profit in long term strategy. So they decide to trade with sideways with smaller risk but medium earning.
    I have read an artcle in bloomberg a few years ago about retail traders and brokers earning statitistics. It have been wriiten that retail traders earn more and brokers less when there is sideways market and lower volatility. When there are trend markets so more retail traders losing money and brokers earn more. It was just an article with statistics.

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  6. #1665
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    There are traders that can make money from the market that is actually not straightforward but we should avoid trading under this circumstances because we can easily lose money, sometimes when we trade without understanding the range, there are wrong decision we will make which are going to be counter productive at the end of the day.

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