Four Simple Methods for Identifying Sideways Markets

[Forex92]

A sideways market occurs when an asset's price moves between two parallel levels rather than in an upward or downward direction. A sideways market is easy to spot on a chart, but finding it is difficult. The good news is that technological tools and indicators can help. How to recognise sideways markets in Forex or any other market.

1. ADX 25

The Average Directional Index (ADX) is a technical indicator that shows whether an asset is trending up or down or sideways. High ADX values (about 30 or above) indicate a price trending up or down. Low ADX levels (about 25 or less) indicate a price trending sideways. Adding ADX to your chart separates range from trending markets.

2. ATR below 20-period MA

The ATR is a technical indicator that shows the average distance between recent highs and lows. Given that ATR measurements are not standardised, it is critical to compare current ATR values to previous ATR readings for the same asset. This is where the ATR's 20-period Moving Average kicks in. Incorporating ATR with a 20-period Moving Average can help filter out major bull and bear runs and focus on ranges.

3. RSI 40-60

The Relative Strength Index (RSI) measures how strongly a price moves up or down. RSI readings above 70 indicate strong bullish moves, while RSI values below 30 indicate strong bearish moves. For a range trading strategy, the RSI should be between 40 and 60.

4. Analyse multi-temporal

Before entering a trade, check the asset's higher and lower time frames to see if the market is trending or range. Whether you are trading on an H1 chart, you can check the M5 chart to see if the trend is the same, and the H4 chart to see if the price is moving in the same direction. The trend is considered strong if numerous time frame charts corroborate it.

 

[Shaf]

I have always thought that from the candlesticks or line chart themselves, one can identify a market in a range even though I find it difficult to understand how people identify the top and bottom of a range.

Having tools to use will surely make it easy to do that, and one can avoid the outliers of such a range.

I do know though that most traders, especially if they trade on higher time frames do not like to trade when price action is within a range and market makers like to use wicks out if this range to hunt stop loss.

How do traders who take trades in a range avoid such from happening?