How to recognise Sideways and Trending markets

Trending and sideways phases are cyclic in any market and after a trending phase expect a sideways phase and after a sideways phase expect a trending phase.....if there is anything certain in the markets ...it is this.

Traders make money in trending phase and give it back in the sideways phase....sometimes they loose more in sideways phase. Every trader has to understand how he is going to negotiate the sideways phase so that he makes some money in it or at least preserve what he has made in a trend and again ride the trend when the market starts trending again...

How do we know that we are in sideways markets ? The charts will indicate that. I have taken an example of Nifty Futures 5 min chart.....we had a nice downtrend till point A , then we had an upmove upto point B.....the first indication of sideways market came when at point C market was unable to take out point B...then D,E,F,G all sideways moves till we get a breakdown of the range.....

Traders handle sideways phase in different ways depending on what he is comfortable with ...various ways of handling sideways phase are as under :

1) If you are a range trader, trade the extremes of sideways range....buy near the bottom of the range and sell near the top....

2) Decrease your volumes in sideways phase and increase back to normal volumes when trend starts.

3) Trade on sideways market indicators, oscillators, Bollinger bands extremes etc

4) Totally stay away in sideways phase and trade only trending phases....


So in this range either trade the extremes or just stay out and dont loose your capital and energy trading sideways markets......get on to trends when they start again.....

Smart_trade

When Not To Trade Is Very Important Trading Decision Too

When Not To Trade Is Very Important Trading Decision Too

Last few days have been sideways range days and the up moves as well as down moves are very fragile and they are not holding up. I have received many pms, phone calls from traders who are either trading their own methods or trading on calls given by others . And as these systems are mostly trend following systems they are hitting stoplosses regularly . Some call services have had 8-12 stops hit consecutively on full quantity, thus seriously damaging the trading account of some traders.

Trend following methods need sustained trends in the timeframe which we trade. Though the market trends only 25-30 % time, there is a trend on larger or smaller timeframe. Trend following systems cannot make money in sideways markets where trends are not durable tossing us in both the directions.

I have done some posts about how to know whether the market is trending or not. A trader has to understand the structure of the market he is trading and mindlessly following trend following systems in sideways, small range markets saying that " Descipline and Faith on the system will make money finally" is like banging our heads against a wall and saying if we do it with discipline and faith,one day the wall will break.. It may put our heads out of shape.

In such markets it is better to step back and not to trade till the market is in the sideways range....or trading smaller lots is very essential in preserving the capital and being able to keep the gun powder dry so that when the market comes out of the range and starts trending we can go with all guns firing.Large and continuous losses also put pressure on the mind of the trader and I really wonder whether after 10-12 continuous losses even most " disciplined" trader also will be able to take 13th and 14 th trade.......everyone should ask this question to our own minds....After sideways phase a trend will always come....it is much more cyclical in nature...so be financially fit to take full advantage of the trending phase...In sideways phase, the goal should be trading small, less frequently to preserve the capital

So preserve your capital, trade small in sideways markets.....dont do "Financial Harakiri" in the name of discipline. Remember that " When not to trade is very important trading decision"

Smart_trade