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Forex Trading When The Markets Are Moving Sideways

According to most Forex rules there are 2 basic stages of market. Trending and consolidating. When the market is going up or down its trending, and when the market is going sideways its consolidating.

Now depending on what time frame you are looking at, the market can spend quite a bit of time moving sideways or consolidating. For example if you are looking at a daily chart like the chart the left you will see that the market is moving sideways.

Now every candle on that chart represents 1 day. So within each day you will have another chart pattern. You may have a consolidation pattern, or you may have a trending pattern. The point i am trying to make is the market is never really moving sideways, it is always trending, or moving up or down.

When the market is in consolidation most traders will tell you not to trade as you don’t know which way the market is going to move, and you may get caught on the wrong side of a breakout. I will agree with that 100%. But you need to qualify which time frame you are looking at before you can make a decision on whether to trade or not. I would quite happily trade a sideways moving market on a weekly, daily, and H4 time frame, or even possibly a H1 time frame, but i would not trade a sideways consolidation on anything less than H1. All time frames are made up of trends and within those trends there are trend trading opportunities.

A good way to qualify if a consolidation is OK to trade is to measure the number of pips the consolidation covers. Basically you just draw a line at the top and the bottom of the range of the consolidation, as per the above chart, and measure the pips in between. The tighter the range the more risk will be associated with trading that consolidation. You may have a H4 consolidation that covers 100 pips or more. This would be OK to trade on say a 15 min or H1 time frame, as it would be made up of many trends. Now if this consolidation was made up of a 20 or 30 pip range there would be far more risk associated to trading it, as a breakout of a tight range is more likely to happen than a breakout of a large range, and you don’t want to get caught on the wrong side of the breakout.

A good example of a consolidation not to trade would be the Asian session, or Tokyo channel as some people call it. The Asian session often is a period of consolidation for the markets and a 20 to 30 pip trading range is often seen. When the UK session then opens you will get the breakout. If you have ever tried trading the Asian session you will know exactly how unpredictable this consolidation period is.

So to recap. Trading Forex when the markets are moving sideways is quite acceptable if the consolidation covers a larger time frame, and a larger number of pips. As within those consolidations there will be many tradable trends. Stay away from consolidations on lower time frames that cover less than 30 pips.

I would just like to add that this article has nothing to do with how i trade. Its just a general Forex article to give you a bit of help and advice on what not to do. What i teach is a complete understanding of price action trading, and how to read a chart. When you can read a chart and understand price action at a professional level, you can enter and exit trades with complete confidence. I will teach you how the big boys play this game. And when you have the same level of understanding as the best traders in the world you will be able to trade like they do.

If you want to learn how to trade Forex like the big boys, please consider my training and mentoring program here.

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