Consolidation trading can be profitable

Have a question about trading? Any questions are welcome. Go ahead!

Consolidation trading can be profitable

Postby George FXtrades » Tue Sep 15, 2009 2:03 am

Hello Edward,

For the past weeks, the EUR/USD pair had established many consolidations and ranging situations with price movements up and down within the range of < 20 pips between the marked Support and Resistance. The ranging period can be as long as a 3 hour duration.

Unexpected price shifts cause sudden surge to decision-making into BUY or SELL Orders simply more than ignoring the trading opportunities hopeful to earn a few pips within the market behaviour. However, this is easily said than done, but not as what the performance outcome achieved.

While in consolidation most of the times, the random sharp changes in prices moved back to where it started, and at other times, a new trend emerged through breakouts. The Bollinger Band is the good indicator in identifying the momentum signals towards a possible breakout in the making.

However, somewhere moving steadily along the newly emerged trend and normally short-lived with a sudden quick reversal occurred after a few candlesticks forcing the trend returns to its original birthplace.

This kind of oscillating movement is difficult to arrest with positive results, and all these happen in the smaller time frames like 5 mins, in addition, very noticeable in the one minute chart.

It is very frustrating and stressful in this long waiting game which ends with losses ultimately due to intermediate market fluctuations and uncertainties. Apart from depletion in the usable margin plus wasted time, one can also blame onto lady luck.

1. As a short-term intraday trader, can you suggest an approach to trade profitably inside the range of consolidation with anticipation the market will eventually breakout to higher grounds?
2. Would you recommend someone to trade under such unpleasant situations?
3. Alternatively, do you recommend staying out, but trade only at breakout situations (like rising trends – not easily come about) that are more favourable?

Regards.
George FXtrades.
George FXtrades
 
Posts: 10
Joined: Fri Aug 07, 2009 8:09 am

Re: Consolidation trading can be profitable

Postby Edward Revy » Sun Sep 27, 2009 4:11 pm

Hi George,

Consolidation trading should be avoided when possible. Why? Consolidating markets claim the largest percentage of all losses sustained by traders: some enter in the wrong place, some get repetitive entry-exit signals from trend following indicators and systems and fail, some try to catch the breakout and instead get caught in a false break, some try to trade inside the range seeking tops and bottoms chaotically etc etc. What to do then?

Rule 1: don't trade 5 min and 1 min time frame with ranges, it is very risky and most of the time unprofitable.
5 and 1 min time frames should be traded only during good trends, in other words, a system that runs on 1 or 5 min TF should be tailored to capture trends and avoid ranges.

In my opinion, it is not worth trading a range, unless you trade it on 1 hour TF or higher.

Rule 2: should you decide to take trades during the range, take only those that go in the direction of the main trend.

Rule 3. You can trade a breakout of the range, but it is better to take a breakout of the breakout, using the method described here:
Advanced system #1-a (for this purpose choose time frames of your own)

Rule 4: Even better method, so to speak, level UP approach is to enter inside the range in the direction of a trend as shown on the sketch below:
Attachments
rangeboundentry.png
User avatar
Edward Revy
Site Admin
 
Posts: 209
Joined: Wed Jul 01, 2009 6:20 pm


Return to Newbie questions & answers



cron