Quote:
Originally Posted by BrianSNJ
I am learning so maybe I will be incorrect but my belief is that you might as well just have 2 completely different systems -
One for trending markets
One for sideways (ranging) markets
OR
Just stay out of a currency pair going sideways and find another that is similar and trending.
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Nope, you're right; those are the alternatives.
The key is to determine what type of market you are looking at: trending, or ranging/consolidating. Then adapt your choice of trading stategy to fit, or wait out the sideways movement, perhaps while trading elsewhere.
ADX (developed by J. Welles Wilder, a name you'll probably see again) w/ +/-DI overlaid is one of the few indicators employ regularly. I don't take signals off of it, though, or switch between a trending v. a non-trending perception of the market on its basis; only use it as a reference point to gauge the potency of a pair's trend strength - something it does well, if you've spent a bit of time learning about the indicator. The function of ADXR is to smooth out the data series ADX draws on. For reasons beyond the scope of this discussion, I don't think the "method" described is effective, though.
Starting out, any trader is probably better served learning the vital skill of quickly recognizing when not to trade, rather than trying to manufacture a methodology for recognizing change in market dynamics and then switching systems to continue trading. "Range-bound" is a deceptively simple designation for a market environment that is potentially full of erratic price movement and ugly whipsaws that can chop up trades without considerably distant stops. Not dissuading anyone from attempting to trade at these times and there are pips to be made, but it is not for the beginner, and many experienced traders find time is better spent and their account equity better served by taking themselves out of that pair until price resolves into a discernible trend again.