When There Is No Trend – Trading in a Flat Market: Trading ranges can be a real mess for both novice and experienced traders. They are the time when the price moves sideways, often erratic, and the technical signals that would otherwise result in gains, fail or disappear. The bad news is that such a market takes place more often than it seems. The good news is that trading ranges can provide ample opportunities for smart traders.
To illustrate the conversation we will focus on two types of ranges that we will label as short and long term. What this means for you and your trading will depend on how long you use to trade. A short term range is in which the price normally moves up and down or down and up in a few candles (less than 10). It is usually not enough for any trend to form. A long term range is one in which you need at least 10 candles, usually more, and a lot of time for a trend to develop.
The long term range is the easier of the two to trade, because there is enough time between price jumps for a trend to develop and for that trend to be captured by the indicators. On the daily chart, this type of range can last from a couple of weeks to several months, depending on the asset and particular market conditions. The idea is to follow the trend as it moves up or down in the range.
When you find a move in a long-term range, you can switch to a shorter time interval and try to make your prediction. For example, the USD/JPY has been in a daily range during that time period. It is now moving within the range. It would be wise to confirm the trend in a shorter period of time (e.g. a 4-hour chart) and determine optimal entry points using indicators.
Once you switch to a shorter time frame of the chart, it is possible to start looking for signals that either confirm the prevailing trend or refute it. In this particular case, the trend is up and therefore we will look for bullish signals. Many signals have been received, including candles, stock price, MACD and Stochastic.
Signals can be taken until prices reach the target resistance at the top of the range. Once this level is reached, traders can expect volatility and the possibility of a trend reversal or a breakout. If resistance is confirmed, there is a high probability that the end of the range will be revisited.
It is more difficult to trade the short term range for a number of reasons, including volatility and the time between bounces, which is the time it takes for the price to travel from the top of the range to the bottom. In these cases, traders must do two things.
If the range is especially narrow or is expected to persist for days or weeks, then the right thing to do is to disappear every time you touch support or resistance. This means looking for periods in which the price reaches or exceeds the upper and lower ranges and then making a trade expecting an immediate reversal of the trend.