It’s really fun trading the trends. All you have to do is check whether the market is trending upwards or downwards,then you make your trades. In fact it is said in forex circles that the trend is your friend(Whether it’s true not, that’s another show.). But there comes a time when the forex market goes sideways. By that I mean the market neither experiences an uptrend nor a downtrend. It’s skidding all over the place the way a car skids over a slick road.
This can be very dangerous because you risk losing all your profits from your previous trades in this scenario when you don’t need to trade. So to help you not get caught in this slick sideways trap, I’m going to show you what to do when the forex market goes sideways. But before I do, let me show you what a sideways market looks like.
This is a classic example of a sideways market. The is no evidence of a consistent uptrend or downtrend. The chart is skidding all over the place You’d be crazy to risk your money in such a mess.
Now that we’ve gotten the introduction out of the way, onward to the business at hand.
Is The Market Worth Trading?
The first question you need to ask yourself is “Is the Market Worth Trading?” To make that determination, head straight to the daily chart time frame and find out whether the market is trending up or down. If not, then the market is moving sideways. If the market is moving sideways,then the next question you need to ask yourself is “Is it within trading range(Or range-bound)? Or is it chopping sideways? If the sideways market is range-bound then it’ worth trading. Let’see what a sideways market that is range-bound looks like.
This chart is a classic illustration of a sideways market that is range-bound. The sideways market is range-bound because it’s swinging between the support and resistance levels. Also there is reasonable distance between the support and resistance levels. This provides great opportunities for trading signals, and the possibility that the price will edge closer to the range.
If The Waves Are Choppy, Dont Trade
If the waves are choppy, don’t trade. And by waves, I’m referring to the choppy markets.When we say a market is choppy, we refer to a market that has high consolidation. This type of market area is a no go area because the distance between reversals is too small for profitable risk reward.
If you want to test whether the market is on choppy waters, just head to the daily chart time frame , and ask the questions we posed earlier. Let’s see what a choppy market looks like.
This looks ugly doesn’t it? The price action looks choppy and it’s moving in a narrow range. These are definite symptoms of a choppy market. You do not want to risk your money in this mess.
How Do I Trade Sideways Market?
Just look for buy and sell signals at the support and resistance levels of the trading ranges. One great trading strategy for sideways markets is the fakey pattern. Here, you wait for the market to make a false break of the trading range-which of course creates profit opportunities for you.This strategy is quite useful as it creates deadly moves in the opposite direction back towards the other end of the range. Let’s take a look at a false break in sideways/range-bound market.
As you can see there are pin bar buy/sell signals all over the trading range at both support and resistance levels. You can make a sell/buy entry trade at both support and resistance levels.But make sure you really know what you’re doing or you’ll get burnt.
If you’re not sure about support and resistance levels refer back to Identify Support and Resistance Levels With Price Action Analysis. And If you’ve forgotten what pin bars are, refer to Pin Bar Srategy – How To Trade It
That’s a wrap for “The Forex Market Goes Sideways” It’s possible to make profits from sideways markets. But you need to play your cards carefully, or your trading account will go up in smoke. Til next time take care.
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