When Market Goes Sideways - Forex Forum

I am developing a trading statergy predominantly based on EMA crossover. However, when the market goes sideways, my strategy falls apart and I am loosing out. What indicators will show that markets is moving sideways so that I can not enter a trade?

Do you want to know how to make money in a sideways market? This is when a stock does very little. Maybe it is up a little one day and down another. There is a way to become quite profitable in this market. Let's examine how.
First let me familiarize you with some basic keyword. A call option gives the buyer the right to buy a given stock at a given strike price on or before expiration. For this right the buyer will pay a premium based on the strike price and expiration.
A put option is exactly opposite. This gives buyers the right to sell a stock at a given strike price on or before a given date. They also pay a premium based on the strike price and expiration.
The object of Forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold.
Example of making money by buying euros
Trader's Action EUR USD
You purchase 10,000 euros at the EUR/USD exchange rate of 1.18 +10,000 -11,800*
Two weeks later, you exchange your 10,000 euros back into US dollars at the exchange rate of 1.2500. -10,000 +12,500**
You earn a profit of $700. 0 +700
*EUR 10,000 x 1.18 = US $11,800
** EUR 10,000 x 1.25 = US $12,500

An exchange rate is simply the ratio of one currency valued against another currency. For example, the USD/CHF exchange rate indicates how many U.S. dollars can purchase one Swiss franc, or how many Swiss francs you need to buy one U.S. dollar.

wes is talking about ranging market as MAs are known to give false signals in these markets.

You can use a stochastic oscillator : there are known to be oversold/oberbought when there are trends. Only enter when your MAs crosses+stochastic in overzones.

Is it clear?

thanks..I have some questions:

1) When I open stochastic oscillator in MT4, it is aksing for %K, %D and slowing values. the default is 5 ,3, 3. are these good?

2) Are the cut-offs for oversold/oberbought are 20 and 80?

3) for exit signals, is it recommonded that I exit when the stochastics to enter the opposite zone or exit when the next cross over takes place.

4) The stochastics have 2 lines, which line should I look for (when I wait for it to exceed the overbought/oversold) limit?

1/ Choose these values according to your strategy. 5 3 3 could be good for some, 30 1 3 good for others. No values are better than others. If you don't find yours apply reset to have the default (most used) values.

2/ Yes. If you use stoch as a trend follower you can take 30/70.

3/ Common use of stoch recommends waiting for the next crossover, but if used at trend follower you must use it as a filter : over 80 you know you are in an uptrend. Wait for your MA crossover to enter long. Under 80 absolutly no long entry, even if MA crossover is OK.

4/ %D is a MA of %K. It's used as a signal when you rely on stoch, but in a trending strategy it's useless because you add lag with %D. Just follow %K with os/ob levels.

Dam.

Thank you so much. Much appreciated. I didn't understand what you meant by "If you use stoch as a trend follower you can take 30/70"

I am using EMA crossover as my main indicator, but to eliminate sidway moves, I will be using stochastics to confirm trends. In that case should I use 20/80 or 30/70?

In the above stratergy that I just described, what exit is recommonded- crossover in the opposite direction, or stochastic entering teh opposite zone?

In a ranging market, you can also drop down time frames - so if you normally trade a 1H or 4H chart, drop to 5M or 15M. Dangerous tho if u havent properly backtested ur strategy on lower TFs.

What I personally do, though, is trade off S/R levels - these tend to hold more in a ranging market, you can place v tight SLs above the R / below the S, and it makes for a good Risk:reward ratio. Simple, but effective.