Saturday, 1 June 2019

How to trade in Sideways conditions

In the forex market, prices have a tendency to move upward (downtrend) or downward (downtrend). There are also times when prices move Sideways or move in a range (ranging) after trending.

However, not all Sideways conditions are always the same, some can be traded and some should be avoided. Here are some tips if you want to trade in Sideways conditions:

1. Determine Sideways Conditions That Can Be Trading
Sideways conditions in forex can be traded if limited by a clear price range. In this case, the price oscillates or moves within a fixed range between the Support Resistance levels.

To find out whether Sideways conditions are worth trading or not, it can be seen by zooming out, or seeing price movements on a higher Time Frame. Does the market seem to be trending clearly, be it an Uptrend or a Downtrend?

If it doesn't look trending, it's a sign that the market is in Sideways condition. If Sideways then determine whether the movement is in a clear or choppy (irregular) range. Following are examples of Sideways conditions in forex with a clear trading range:

Seen in the chart above, the price is in a clear trading range between key Resistance levels and Key Support. These levels are the benchmark for Entry and Exit and where we see the possibility of a valid trading signal. With a clear range, we can also determine an adequate Risk Reward Ratio, because of the possibility of price movements from the Support level to the Resistance and vice versa is quite large.

2. Don't trade when the market is choppy
Choppy or irregular Sideways price movements are caused by market consolidation, where actors are waiting for each other. Such market conditions are not feasible to trade because the shape of the candlestick bar moves erratically, so we find it difficult to determine an adequate risk reward ratio. The following is an example of a choppy condition after the price moves in a strong downtrend:

Note that price movements are erratic and immovable within a clear range, the Exponential Moving Average (EMA) 8 and EMA 21 curves are also close together and tend to move flat. Trading signals that arise in choppy conditions are usually invalid. If such market conditions should not be Entry. Wait until the price movements return trending or remain Sideways but form a clear range.

3. Use Price Action in the Sideways Market In the picture above, the signal for Entry can be done when the Candlestick forms a long-tailed Pin Bar pattern, Bullish / Bearish Engulfing, Morning Star, and Evening Star which indicates Rejection at the Resistance or Support level. This condition is called False Break. By determining Stop Loss at the highest or lowest level of the Pin Bar, and the target at the Support or Resistance level, we will be able to trade with an adequate Risk Reward Ratio.

Also Read : Short Price Action definition

Sideways market conditions in forex are not always scary. Open your understanding that the Entry moment can not only be applied when the market is downtrend or uptrend, but can also be applied when the market is Sideways. Indeed price movements tend to go up and down as if without direction. However, if you are able to apply trading tips on Sideways conditions in a disciplined manner, of course trading on any Trend is no longer a problem.
If the Sideways condition is accompanied by a clear range, usually the trading method used is False Break Entry or Entry when the price fails to penetrate the Resistance or Support level as in the following example:

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