Friday, April 28, 2006

Forex Trading Strategies For A Sideway Market

Before we look at our strategies for trading the sideways market, let's have a look at the spinning top Japanese Candlestick we saw in our trade yesterday.

Japanese Candlestick Reversal - The Spinning Top
The Spinning top is another reversal indicator which, when coupled with other data, can be a good sign that the market is about to do an about face! The smaller the central body (which can be filled in or hollow) the less current direction the market has. In this case the body is solid meaning the open was HIGHER than the close.

As I mentioned above, in yesterdays trade you can clearly see the spinning top before the subsequent upward movement.

Now, onto our ideas for trading in the sideways market.

As with our upward and downward trends, a sideways trend is an excellent money making opportunity. After a big movement the markets will usually enter a period of relative inactivity. (this can also happen before an important news announcement)
We can clearly see our support and resistance trendlines, in this case forming a channel. We are now looking for a breakout from this channel – either up or down – to enter our trade. It is very important to set a good margin for error when attempting these kinds of trades, as there are frequent ‘false breakouts’. One formula for doing this is to use the width of the current sideways trend as a marker for sell entries and buy entries.

To clarify, if the width of our current sideways movement between support and resistance is 20 pips say. We set our buy point at 20 pips above resistance, and our sell point 20 points below. However, there really is no substitute for watching the chart unfold and paying close attention to any indicators in the emerging candlesticks. These will often become repetitive during these periods of inertia, so particular attention is required. We can of course trade the width of the channel while our trade bounces between support and resistance. But we need a decent pip range to risk this - I would say 30 Pips+

There is a trade, demonstrating this technique in the real world already on this blog, if you click Here
Scroll down the page to read about the trade.

Happy Trading!
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