Range-Bound Market: Ranging Market Trading Solutions
During a range-bound market, forex traders experience anxiety as they ponder whether to go long or short. During such situations needless to say, all trend following indicators, including what all forex traders look for, “the best forex trend indicator” fail miserably. None of these “great” friends of a trend are Holy Grail. Therefore, every forex trader needs to be equipped with the right and simplified trend indicator, ranging market scanning/detector and volatility scanning indicators.
Trend indicator
These categories of indicators range from the simplest moving average to complex custom indicators. Over all, you should expect them to give false signals at times especially when the market is ranging or flat. However, this is where order management comes in to close losing trades early. Besides, it is vital to make sure you do not over trade or follow the trend for a prolonged time as you many never know when the direction may change. Consequently, as a forex trader, one should wait for the price to re-trace substantially before re-entering the trend. Hence, before you activate the price following indicators make sure you have scanned the market and ascertain it is trending and not ranging.
But, how do you tell the absence of a ranging market? Are there tools in the market for ranging market detection?
The market may be ranging, but at times the indicators such as ADX and Bolliger Band many not help much to detect or scan the trendiness of the market, especially if your trend following indicator and the ranging market scanner/detectors are not in sync. Personally, I prefer the latter to be of medium responsiveness and the former sensitive but not overly set. In this case, you will be able to flag early trend changes which is then confirmed or nullified by the less sensitive ranging price scanners. This will ultimately filter false signals generated on the price chart. See an example below.
I also prefer combining the volatility registering indicators and the range status detector. This way, I am able to identify when the volatility rises before the breakout.
Lastly, the use of multi-timeframe analysis is one of the best abilities in indicator/EA coding. Your decisions making improves significantly when you are able to scan and detect the state of the market from higher or lower timeframes from one window.
