What to do in ranging markets? Traders worst nightmare | Forex Factory

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What to do in ranging markets? Traders worst nightmare

  • #1
  • First Post: Jan 16, 2012 11:51am Jan 16, 2012 11:51am
Ok,

As we all know the markets are trending 30% of the time and ranging other 70%.

There are many good trading systems out there and basically any strategy and any trader can make money when the market is trending. (unless u are fading the trend )

But as we all know markets conditions change all the time from trending to ranging.

My question is this:

What methodology/system/rule do you use to evade the loosing trades in range markets and what helped you the most?

For me using ichimoku cloud or previous bar H/L ....S/R lines helps a bit but still too often it happens that stop loss gets hit and then trade reverses and then it reverses again...u know the usuall frustration. Please share some of your opinion/solutions to this because what i find the most critical component of being sucessfull in forex is eliminating the losses and staying out of the trades during range markets.
  • #2
  • Jan 16, 2012 1:21pm Jan 16, 2012 1:21pm
I guess you could switch to a smaller TF - that is, if the market is in a range on W1, D1, H4..TFs try trading 30m, 5m, 3m..charts to catch mini trends, reversals..etc. If the market is stuck in a narrow range on a small TF or you don't want to use faster TFs then perhaps find another market that is trending on your TF of choice. Some traders like to scalp ranging markets, others will use some indicator like macd, stoch, cci.. and enter at overbought/oversold levels or simply sell the top/buy the bottom of a range. I don't mind ranging markets unless price makes wild swings in both directions in which case I'll find another market/instrument, there are many to choose from.
  • #3
  • Jan 16, 2012 4:14pm Jan 16, 2012 4:14pm
Quoting 96flavors
I guess you could switch to a smaller TF - that is, if the market is in a range on W1, D1, H4..TFs try trading 30m, 5m, 3m..charts to catch mini trends, reversals..etc.
Thats excatly what im doing. Trying to catch 20-30 pip mini trends during volatile times yet too often those "mini ranges" happen to kill the profits.

Thx alot tho for your advice.
  • #4
  • Jan 16, 2012 4:26pm Jan 16, 2012 4:26pm
In my startup time I used to make money in the calm ranging periods of the evening, losing everything when not acknowledging the strong trending during NY sessions.

The advice I can give is:

1. backtest manually, that is watch the last 50 days in 1min bars and 15min bars.

2. youll find out that the brutal breakout always happens with NY open (just at noon in Europe), followed by slowly decreasing ranging moves.

3. put on a Bollinger Band, or eben better, a fast EMA (20 f.ex.) with slopes i.e. bands to it. find out how price behaved the last 50 ranging periods within this form.

4. wait and do nothing until it hits the slopes, then wait for weakening signs on the 1min and scalp the mini trend.

5. risk very little until you lose very little, than risk more and more.

6. to me this is more difficult then to wait for the daily murder that happens in the NY session -> one direction

Success and Insight
  • #5
  • Jan 17, 2012 4:22am Jan 17, 2012 4:22am
If the market is truly ranging then it will be possible to draw two horizontal levels on the chart to mark the extremities of the range. I just trade PA from those extremities back towards the other side of the range. Depending on risk appetite, one can look at trading only in the direction of the preceding trend, or on targeting either the middle of the range or the other extremity. Works well overall as an approach, and is pretty simple to implement, as most trading approaches should be..!

ST
  • #6
  • Jan 17, 2012 3:36pm Jan 17, 2012 3:36pm
Something is always trending, somewhere, on some time frame.

I only trade the daily charts at the moment. I follow around 20 different pairs. 15 of those are in a strong trend.
  • #7
  • Jan 17, 2012 3:45pm Jan 17, 2012 3:45pm
In ranging period, I put my pending orders where I want to put them, with SL & TP. And if then I see they aren't getting filled soon, I say to myself: no trade yet, thank God, it could've been a loss :relief:
The tone of your words reflects the quality and result of your trading ;-)
  • #8
  • Jan 17, 2012 3:58pm Jan 17, 2012 3:58pm
Quoting N11
Ok,
... (unless u are fading the trend )
You can fade trends successfully intraday. You just need good risk management, patience to wait for signs that the momentum is fading and nerves to take the trade.

Anyway getting back to your question - range bound markets are always more choppy and random because buyers & sellers are in broad agreement (that's why its a range).

Bottom line is the easy money is made during trends. Why waste effort trying to grab a few pips in a range?
  • #9
  • Jan 24, 2012 4:16am Jan 24, 2012 4:16am
I admit that I have come to the same conclusion. I wrote about ranging markets, but every range gives you a 100% probability of being broken - and you don't want this probability to work against you.
This results in ignoring ranges and wait for the great power of the trend to take you with it again. Me too, I did not want to see this before: trends last incredibly long and are worth the wait. Say to yourself: The big guys need and support trends, they take more than 100 pips, don't they? Go with them.

Success and Insight
  • #10
  • Jan 24, 2012 7:56am Jan 24, 2012 7:56am
I love ranging markets. As someone has already said, you can always find a trend on one of the time frames. The same can be said for ranging periods. To keep afloat in ranging markets try not to think of them as a market condition you need to just survive somehow, but instead actively trade them. My favourite market conditon to trade is a ranging period on the M1 timeframe. Use an RSI 14 with a stoch 14,3,3 and practice picking tops and bottoms. Look for steep moves of 20-30 pips or more and try to pick the reversal. Most times price will reverse at least for 10-20 pips. Keep an eye on horizontal support and resistance lines and watch out for news. I use a 10 pip stop and a 10 pip TP. Total transaction cost for me on EURUSD is 1.5 pips average. Risk Reward slightly worse than 1:1 due to transaction costs but win rate is 3 out of 5 or better.

I must warn though, it's not for everyone and I recommend thousands of hours of watching the M1 charts to get used to how price behaves just before short term reversals. Price movement usually fizzles out, forms some little baby candles and then reverses.

Example: Today's EURUSD chart so far this morning I've had 6 wins and 2 losses.
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  • #11
  • Jan 24, 2012 7:58am Jan 24, 2012 7:58am
I trade range markets exactly the same as I trade a trend, only likely in a trend I'll be prompted to hold for longer. Much prefer ranges. Much more frequent entries and stops can be much tighter leading to faster more equitably efficient trades. Down side is lack of pyramiding capabilities and low aggregate risk reward

One thing to consider, for me anyway I'm usually joining a higher time frame trend whilst entering from a range on a lower TF. It's all an illusion really. Trend/ range/ consolidation all the same thing at different levels.
Time hides Nothing
  • #12
  • Jan 24, 2012 9:23am Jan 24, 2012 9:23am
The biggest advantage of ranging trends is that they extremes are relatively easy to spot, which means if you place your trades right you can trade with a very low stoploss, next to the range extremes.

Take Profit Targets are easy to spot too, just take the middle of the range or the opposite end of the range.

The biggest disadvantage though is that range trades are (mostly) limited to the ... well range of the range While in trends the risk/reward ratio can be much higher, and not only that, as already mentioned in trends you can do pyramiding to maximize your profit, while in ranges its no good idea.

But... Range extremes can also be used as cheap entries in the direction of the trend in a higher time frame. In that case, they could even be part of a pyramiding scheme...

Also, its relatively certain that price gets back to the middle of the range, but its not so certain that it will reach the other end of the range...

So to answer your question, I would not switch to lower timeframes to again get a trend, but to correctly identify the market situation as trend / range asap and then switch from trend trading to range trading. If thats no option for you, then I would suggest trading other crossrates, or better yet, other markets and always search for the market that is trending.
  • #13
  • Jan 30, 2012 12:30am Jan 30, 2012 12:30am
Quoting 96flavors
I guess you could switch to a smaller TF - that is, if the market is in a range on W1, D1, H4..TFs try trading 30m, 5m, 3m..charts to catch mini trends, reversals..etc.
The logic on that one is actually backward. If you are in a ranging market, it is one of contraction. Range and volatility are decreasing as the market goes quiet, which means if you drop down a time frame, it is like stepping inside a room with walls slowly closing in on you.

You don't want to be inside that room, instead you want to step outside of that contracting room, and actually move up a time frame, not down. This will stop you over trading in a market that has little to offer your style as the signals are slower, and will give you a greater chance of spotting a breakout of meaning once it happens.

Once you see the walls have stopped closing in, then you can step back into that room and drop back down to your desired time frame.

Happy trading.
You can quit and they won't care, but you will always know.
  • #14
  • Jan 30, 2012 3:00am Jan 30, 2012 3:00am
Quoting Akuma99
The logic on that one is actually backward. If you are in a ranging market, it is one of contraction. Range and volatility are decreasing as the market goes quiet, which means if you drop down a time frame, it is like stepping inside a room with walls slowly closing in on you.

You don't want to be inside that room, instead you want to step outside of that contracting room, and actually move up a time frame, not down. This will stop you over trading in a market that has little to offer your style as the signals are slower, and will give you a...
I understand your logic though don't necessarily agree with all you said.. Re trading ranges and contracting volatility:

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As for the rest, depends what you're after& your trading style(s).. For example, if weekly charts is my thing I might say GBPUSD has been in a range..now if I drop down.. last 10 up days would satisfy most 'trend is your friend' day-traders. Btw, there's plenty of opportunities in ranging markets if one knows what to look for..e.g. trading false breakouts can be a very profitable strategy.

Happy trading to you too.
  • #15
  • Last Post: Jan 30, 2012 3:10am Jan 30, 2012 3:10am
Quoting 96flavors
I understand your logic though don't necessarily agree with all you said..


As for the rest, depends what you're after& your trading style(s).. For example, if weekly charts is my thing I might say GBPUSD has been in a range..now if I drop down.. last 10 up days would satisfy most 'trend is your friend' day-traders. Btw, there's plenty of opportunities in ranging markets if one knows what to look for..e.g. trading false breakouts can be a very profitable strategy.

Happy trading to you too.
You have made a good point, it is dependant on time frames. I am a day trader, so it is likely that dropping down in time frames makes the room too small. If you start on weeklies or daily then you are right, dropping down can provide intra move trends to trade with enough meat to chew on.

I guess it depends on how big that room is to start with
You can quit and they won't care, but you will always know.
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