For many day-traders, sideways markets are truly nightmarish. Your signals that worked in a trending market have now become useless, slowly chipping away at your trading capital and Lambo dreams. Surviving a choppy market is one of the many strategies a trader must develop if they want to extract value. For some, a strategy of simply not trading under certain conditions is a viable one, since the aim of trading is not always to make money, but it’s about not losing your money. However, some may be able to sit on their hands, but for those who can’t or won’t, getting 1-3% moves a day is sometimes all the market is willing to give, so developing a strategy and plan for extracting these gains is crucial.
1) Develop a low-time frame strategy
Trading on a low-time frame setup usually entails making faster decisions, and since speed is key, you want a strategy that satisfies the low time frame trend. For example, a simple “W” bottom or “M” top pattern strategy can yield those crucial 1-3% moves. Look at the line chart on Litecoin/USD and observe how many “W” and “M” setups were tradeable at their peaks and troughs. Remember—these are 1-3% moves, not gigantic 100 % moves we’re used to having a year ago. You have to take what the market gives you, and remember to always have a stop loss.
Simple low time frame “W” and “M” pattern strategy by Pansyfaust on TradingView.com
2) Price action is king:
A problem with trading sideways markets on lower time-frames is that there’s often a fair amount of noise from the choppy market, with many wicks and fake-outs to either side–you can’t control the market, but you can control your trades, so discipline and entry criteria are important. Not only that, but in choppy markets, you’ll find that many indicators (although not all) will often lag, producing untradeable noise or put you in the correct trade too early, or the right trade too late. This is why simply observing price action without wholly relying on indicators will produce better tradeable setups. For example, simple price action in which there are higher lows or lower highs usually means there is tradeable price action on shorter time frames. Green arrows showing lower lows, while the red arrows showing lower highs usually are good price action signals about which side of the trade to take.
Price action trading by Pansyfaust on TradingView.com
3) Speed is key
Since we’re trying to trade a sideways market, our trades move to lower time-frames(15-Minute/1-Hour) in order to find some tradeable setups that don’t chop us out of the market. The aim of any low-time frame strategy in a choppy market is speed—you want to be in and out of the market quickly, but just long enough to make your 2-5% for the day. Using a faster indicator, like the 9/21 EMA cross on a 30-minute time-frame, can also give you faster trade signals.
Fast Trading strategy by Pansyfaust on TradingView.com
4) ABC- Always Be Closing
To trade on lower time frames might make a profitable trade seem like it’s going to go up forever or go down forever, but the aim is to always be in and out of a trade, and you need the discipline to enter based on rules, take profits and take losses—this is not trying to catch the bottom or sell the top, but catch the moves in between.
5) Don’t forget the larger trend
As we enter into a prolonged sideways market, don’t get drawn wholesale into the low time-frame trades at the expense of forgetting the larger trend. Don’t forget to observe the higher time frames in order to filter that bias into your low-time frame trading.