Filtering for sideways/choppy market, how?
I'm a beginner trader from Europe and I've been trying to learn forex for some time now.
I've gone trough the very good PDF that can be bought from this site and I've 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. However... I have a problem that my strategy is not very good or rather very bad when there's 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, I've found this:
Well... I don't know, it may be true. But I'm using MetaTrader 4, and I don't have this ADXR, PDI or MDI indicator (I have only ADX as far as I can tell) so I cannot confirm or deny. Even so... this description is too vague for me at my stage. (Yeah. I'm green, I know...)
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
For a market to be trending one of the two conditions have to be met.
1. ADX is greater than ADXR
2. ADX is between PDI & MDI
Anyone has a good idea or a method about this? I'd really appreciate any response...
Just to let you know, PDI is the same thing as +DI (Positive directional indicator) and MDI is the same thing as -DI (negative directional indicator)
In my personal observation, I mostly see the +DI and the -DI label instead of PDI and MDI label. Check to see of you have these.
Hope this helps
Ok will do! Thanks!
Originally Posted by Stew543
You're trend trading. The problem with that type of methodology is the drawdowns when the market isn't 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.
Originally Posted by hunsheridan
Alternately, you can develop a secondary approach which performs well in range-bound markets and work both systems.
You made a great point except you are talking to ghosts and Russian spammers.
"this description is too vague for me at my stage."
... and it's too complex for me at any stage. I'd bet you, quicker than I'd place any trade on EURUSD, that that combination of those indicators won't 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 you're anything like me, you'll 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
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.
Nope, you're right; those are the alternatives.
Originally Posted by BrianSNJ
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.
"I do not think there is any other quality so essential to success of any kind as the quality of perseverance. It overcomes almost everything, even nature."