Iām a beginner trader from Europe and Iāve been trying to learn forex for some time now.
Iāve gone trough the very good PDF that can be bought from this site and Iāve been building up my strategy mostly using custom trendlines, moving averages, fibonacci technique and a stochastic oscillator, etc. I managed to get to a point where I never miss a decent movement. Howeverā¦ I have a problem that my strategy is not very good or rather very bad when thereās sideways market or not much trending movement so I hit a tremendous amount of whipsaws because of this issue.
For the last few weeks I spent by trying to find ways to filter out sideways market conditions. I tried to use boilinger bands first, then a shi-channel breakout-type approach - no luck. Then I went for the Demark trendlines, maybe that would work - but no way.
Is there any decent way to filter for sideways market?
On another website, Iāve found this:
The relationshp between the ADX & ADXR and the relationship between ADX
and PDI & MDI is in my experience a good way to filter out non-trending
issues/markets.
For a market to be trending one of the two conditions have to be met.
ADX is greater than ADXR
ADX is between PDI & MDI
Wellā¦ I donāt know, it may be true. But Iām using MetaTrader 4, and I donāt have this ADXR, PDI or MDI indicator (I have only ADX as far as I can tell) so I cannot confirm or deny. Even soā¦ this description is too vague for me at my stage. (Yeah. Iām green, I knowā¦) :o
Anyone has a good idea or a method about this? Iād really appreciate any responseā¦
Youāre trend trading. The problem with that type of methodology is the drawdowns when the market isnāt trending. The idea, though, is that the big gains you make on the trends more than makes up for non-trend period drawdowns. You should give Way of the Turtle a read (my review). It includes some stuff that might help you out.
Alternately, you can develop a secondary approach which performs well in range-bound markets and work both systems.
āthis description is too vague for me at my stage.ā
ā¦ and itās too complex for me at any stage. Iād bet you, quicker than Iād place any trade on EURUSD, that that combination of those indicators wonāt be correct any more than 49-51% of the time for any decent period of time.
I came to the conclusion a long time ago that studying price action is far, far better than using any set of indicators to try and filter for these things. But if youāre anything like me, youāll have to prove that to yourself before you believe it.
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.
At least, that is what I have read in over 11 different books on trading.
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 youāll probably see again) w/ +/-DI overlaid is one of the few indicators employ regularly. I donāt 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 pairās trend strength - something it does well, if youāve 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 donāt think the āmethodā 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. āRange-boundā 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.