Hi! Is there any good and precise way to avoid sideways market or periods of market consolidation? I only know ADX to be under 20 but is a lagging indicator… I need some system that “sees” in the future:47: at least a couple of minutes! :48: I might use it for day trading.
There are likely times for the market to consolidate. The end of the New York, Asian open is the one I am most confident with. Another situation that is very likely - if a strong move is followed by a retrace, it is probable that the next phase is consolidation. Don’t use an indicator - use your head.
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The market consolidates after large range days or shortly after leaving a range in any timeframe. The key is to anticipate a trade while the consolidation is occurring… exit after the move from that consolidation and wait for the next opportunity to repeat the process.
[B]GLGT [/B]:57:
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ATR is imho the best simple indicator to measure volatility. Which is low in consolidation periods. ADX shows you trending markets, but has not explicitly to do with volatility or to show you ranging markets.
Then as general rule, after a very quiet market, a breakout is likely to happen soon.
Hi,
lulian:
You (probably) don’t know me but I’m the ‘Wilder Junkie’ i.e. I trade ‘anything Wilder’ and consider myself some time of ‘authority’ on his work (after six years of studying his work 24/7 I think I’m ‘qualified’ to make that statement)!!! LOL!!!
As much as I HATE to admit it: ADX, as you’ve correctly noticed, lags terribly when it comes to signifying the presence of a trend or a range. In my (vast) experience with it: most all the time ADX will indicate a range (by being under 20) JUST as the range is about to end and a trend is going to start. In my opinion: ADX’s BEST and MOST reliable indicator is when ADX starts to turn down after rising over 20 from being below both +DI and -DI. It doesn’t mean that the trend is going to end but it DEFINITELY (within a bar or two which is a relatively short space of time if you really think about it) give you and indication that the trend has paused and, as Wilder suggests, if trading multiple contracts, it’s normally a good time to take some profit off of the table.
There have been some attempt (by many including myself) to sort of give ADX a ‘boost’ (removing Wilder’s ‘smoothing’, shortening the period, that type of thing) but inevitably this leads to whipsaws and MANY too. You must remember (know) that ADX ACTUALLY forms part of one of Wilder’s technical trading systems called ‘The Directional Movement System’. While it CAN be used for your purposes that was not it’s main reason for being developed or designed by Wilder (although he does indeed suggest to use it, optionally, as a confirmation for all of his other trading systems although I’ve found that to be counterproductive due, of course, to its lag).
There is another indicator called VHF (‘Vertical Horizontal Filter’) (I forget who designed or developed it right now but just Google it and you’ll find it). I’ve found it works (but only slightly) better for this purpose.
Put it this way: the person that can develop something that will indicate the start of a trading range within three bars would be able to sell that code for a small fortune!!! LOL!!! Unfortunately it’s virtually impossible logically speaking i.e. the range has to exist before ANY indicator can indicate as such!!!
BUT this BEGS another question of my good friend Mr. Gecko:
If I may ask: how do you use ATR (OF COURSE IT TOO being a ‘Wilder invention’ which always ‘warms the ****les of my heart’)??? I’m guessing here but you’d be looking for a ‘below average’ ATR on a particular instrument and ‘watch and wait’ for it to start increasing??? Of course: ‘below average’ is subjective. Also: all ATR will tell you is that the average (true) range of the bars is increasing. It doesn’t necessary mean that a breakout of a range is imminent but possibly that the range is just becoming wider??? Just curious.
Here’s some ‘food for thought’ (from ‘The Old Man’ himself in his ‘Commodity Selection Index’ chapter):
[I]‘Volatility (ATR) is also an indicator of movement. The paradox is that volatility is always accompanied by movement, but movement is not always accompanied by volatility. A commodity can move up very slowly and be high on the Average Directional Movement Index Rating (ADXR) but still be low on the Volatility Index (ATR)’.[/I]
Regards,
Dale.
Good afternoon Dale!
Well, atr is for sure not THE indicator to measure trendy or ranging markets in itself. It was more regarding the consolidation periods, which are mostly quit markets. This would be indicated by a low volatility imho. Consolidation is equilibrium of price and value. At least in the short term. So we have a very tight range. Hence low vola.
Anyhow, there is one indicator which solves the issue. It is specialized to show you if noise is larger or trends are larger:
Damiani_volatmeter - MQL4 Code Base
It uses the atr plus std dev as indication to seperate trending and ranging markets. Ranging here means noise. Ranging imho doesn’t mean always noise. If you have a range with almost the same highs and lows that is very well tradeble. As such, it is a trend of it’s on. A sideways trend. What kills traders are ranges out of pure noise. If you have a range with completely random highs and lows.
Thanks Mr. Gecko.
I’ll take a look see.
As you know: most all of my trading systems are trend following systems so I’m quite used to get my ‘you-know-what’ ‘whipsawed off’ a fair number of times in a row!!! LOL!!! It’d be nice to eliminate a few whipsaws now and then!!! LOL!!!
Thanks again.
Regards,
Dale.
No problem.
You know, if I read through the forums and just recognize how blind people are if they swear to their naked charts these days, I am wondering why almost all successful traders in the long run had some indis. Those “naked” folks sound like religious fanatics and just their style is the holy grail. While fanatics are almost blind, aren’t they?
I mean, I do not use this indi right now for trading, but backtested with a couple of pa rules etc. might give one a proper system to make money consistently. Or improve a proper system a little.
Have a great day there, Dale! 
You can just use your management skill to handle the market consolidation. It is very difficult to avoid it. If you have a proper money management strategy, you can minimize your losses significantly in any market environment. Also, if you notice a V/inverted V formation setup, then you will know that price is likely to retrace.
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Consolidation periods or sideway ranging especially on H1 and H4 gives us a picture on what its planing to do next.
Anticipating and trading a break out from this well defined areas can be done but its also prone to give out false entries or break outs.
The trick is to read where the price is going to go next from the range and entering on the extreme ends of the range to absolutely minimize our SL.
This cannot be done for every trade, but when done, it is a very safe trade where we can risk maximum and move SL to BE as soon as possible and not expect it to be taken out.
Take time to see how price behaves between TFs on ranging areas.