Trading Pumps in a Sideways Market
We've been trending sideways a lot lately. We mostly have pumps and long consolidations, not a proper trend. So, here are some tips on how you can trade and survive in this market.
There are 2 basic ways of trading sideways trends. I'm using the M15 chart to illustrate.
1) Treat everything as a range. Trade breakouts from the range. Place Buy Stop orders above the new highs and Sell stop orders below the new lows and wait for the price to come to you and trigger one of your orders instead of going long/short inside the range to chase the price in either direction. Take profit immediately after the move ends.
This way:
- you don't have to pay interest for open positions inside the range (sometimes sideways trend can last for days and just maintaining the position becomes more expensive than the potential reward)
- you don't care much about direction and teases/fakeouts, you are ready to go either way when a breakout happens
- you don't have to manage opened positions and worry about breaking even if market changes direction and goes against your positions
On the chart:
Green Arrows - Stop Buy Orders
Red Arrows - Stop Sell Orders
Green dots - a Buy Stop order is triggered, a long position opened, Lime dots - Exit point to take profit
Red dots - a Sell Stop order is triggered, short position opened, Magenta dots - Exit point to take profit
When price is above EMAs and going up:
- look for long entry points, ignore shorts
- place a Buy stop above each new high/top
- place a Sell stop below 50% retracement of the entire swing or below EMA 100-200 or below key support level (such as 6000)
When price is below EMAs and going down:
- look for short entry points, ignore longs
- place a Sell stop below each new low/bottom
- place a Buy stop above 50% retracement of the entire swing or above EMA 100-200 or above key resistance level (such as 6000)
The idea behind is that in a strong trend/after pump we usually have 23.6-38.2 corrections, rarely 50%. So, going past 50% after pump usually results in fading and reversal.
EMA 200 roughly splits the bear/bull markets. When price is crossing the line far enough it usually means a reversal.
EMA 100 is a sort of median line and price tends to come back to it (just like bollinger and pitchfork median lines)
EMA 50 is a rough meandering path for the price
Don't place orders within the range because the market can always change direction, sudden moves inside the range and traps (yellow spots) can trigger your orders and then go in the opposite direction.
It's not perfect but it works.
2) Trade based on RSI overbought/oversold levels. RSI is very useful in ranges and during corrections and doesn't help much during trends, because it's an oscillator.
- note prev extreme RSI levels, is it mostly oversold or overbought?
- if RSI is mostly oversold (below 30) its curve may not reach the overbought 70 level, you need to adjust the RSI channel to 20-60, where 60 is the new overbought level.
Go Long at oversold level 30 or below, Exit/Go Short early at RSI 60 or at the overbought 70 if reached. RSI below 60 is considered a bearish market.
- if RSI is mostly overbought (above 70) its curve may not reach the oversold 30 level, you need to adjust the RSI channel to 40-80, where 40 is the new oversold level.
Go Short at overbought level 80 or above, Exit/Go Long early at RSI 40 or at the oversold 30 if reached. RSI above 40 is considered a bullish market.
- note that RSI does not include the wicks, only bodies (candle close price). Horiz movement cools off. RSI. Arrows on RSI show when to go long/short.
Nested Red/Green Rectangles on the chart illustrate the MTF RSI oversold and ovebought concepts.
When D1 and all other TFs are RSI oversold/overbought expect the strongest buy/sell reaction because of a colossal support/resistance due to price compression.
3) Don't trade, stay on the sidelines and wait for trend change confirmations
Good Luck!
This is not a financial advice. Use at your own risk!
There are 2 basic ways of trading sideways trends. I'm using the M15 chart to illustrate.
1) Treat everything as a range. Trade breakouts from the range. Place Buy Stop orders above the new highs and Sell stop orders below the new lows and wait for the price to come to you and trigger one of your orders instead of going long/short inside the range to chase the price in either direction. Take profit immediately after the move ends.
This way:
- you don't have to pay interest for open positions inside the range (sometimes sideways trend can last for days and just maintaining the position becomes more expensive than the potential reward)
- you don't care much about direction and teases/fakeouts, you are ready to go either way when a breakout happens
- you don't have to manage opened positions and worry about breaking even if market changes direction and goes against your positions
On the chart:
Green Arrows - Stop Buy Orders
Red Arrows - Stop Sell Orders
Green dots - a Buy Stop order is triggered, a long position opened, Lime dots - Exit point to take profit
Red dots - a Sell Stop order is triggered, short position opened, Magenta dots - Exit point to take profit
When price is above EMAs and going up:
- look for long entry points, ignore shorts
- place a Buy stop above each new high/top
- place a Sell stop below 50% retracement of the entire swing or below EMA 100-200 or below key support level (such as 6000)
When price is below EMAs and going down:
- look for short entry points, ignore longs
- place a Sell stop below each new low/bottom
- place a Buy stop above 50% retracement of the entire swing or above EMA 100-200 or above key resistance level (such as 6000)
The idea behind is that in a strong trend/after pump we usually have 23.6-38.2 corrections, rarely 50%. So, going past 50% after pump usually results in fading and reversal.
EMA 200 roughly splits the bear/bull markets. When price is crossing the line far enough it usually means a reversal.
EMA 100 is a sort of median line and price tends to come back to it (just like bollinger and pitchfork median lines)
EMA 50 is a rough meandering path for the price
Don't place orders within the range because the market can always change direction, sudden moves inside the range and traps (yellow spots) can trigger your orders and then go in the opposite direction.
It's not perfect but it works.
2) Trade based on RSI overbought/oversold levels. RSI is very useful in ranges and during corrections and doesn't help much during trends, because it's an oscillator.
- note prev extreme RSI levels, is it mostly oversold or overbought?
- if RSI is mostly oversold (below 30) its curve may not reach the overbought 70 level, you need to adjust the RSI channel to 20-60, where 60 is the new overbought level.
Go Long at oversold level 30 or below, Exit/Go Short early at RSI 60 or at the overbought 70 if reached. RSI below 60 is considered a bearish market.
- if RSI is mostly overbought (above 70) its curve may not reach the oversold 30 level, you need to adjust the RSI channel to 40-80, where 40 is the new oversold level.
Go Short at overbought level 80 or above, Exit/Go Long early at RSI 40 or at the oversold 30 if reached. RSI above 40 is considered a bullish market.
- note that RSI does not include the wicks, only bodies (candle close price). Horiz movement cools off. RSI. Arrows on RSI show when to go long/short.
Nested Red/Green Rectangles on the chart illustrate the MTF RSI oversold and ovebought concepts.
When D1 and all other TFs are RSI oversold/overbought expect the strongest buy/sell reaction because of a colossal support/resistance due to price compression.
3) Don't trade, stay on the sidelines and wait for trend change confirmations
Good Luck!
This is not a financial advice. Use at your own risk!