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How To Trade Ranging Markets: 1. General Information

This document provides rules for a mechanical trading system that classifies markets as either trending or ranging and defines entry and exit rules accordingly. It uses indicators like ADX, ADXr, and Average Daily Range (ADR) to determine market state. Entries are taken when indicator conditions are met, with stop losses placed 10% below entry candle lows. Partial profit taking occurs when ADX flattens. Ranging markets use Bollinger Band violations for entries. Strict money management is emphasized over perfect entries.

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Zayminhtet Mc
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160 views

How To Trade Ranging Markets: 1. General Information

This document provides rules for a mechanical trading system that classifies markets as either trending or ranging and defines entry and exit rules accordingly. It uses indicators like ADX, ADXr, and Average Daily Range (ADR) to determine market state. Entries are taken when indicator conditions are met, with stop losses placed 10% below entry candle lows. Partial profit taking occurs when ADX flattens. Ranging markets use Bollinger Band violations for entries. Strict money management is emphasized over perfect entries.

Uploaded by

Zayminhtet Mc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 7

How to trade ranging markets

jmn5611 @ forex factory

Abstract: A trend trading system works great if the market is trending but you
will give back a great deal of the pips earned in lower time of volatility. This
system will give you rules on how to classify the market in either trending or
ranging and how to behave in these situations. The entry rules are 100%
mechanical and will grow your account if followed strictly.

1. General information:

Trading time: any


Time frame: any
Currency: any

First we will go over the indicators and terms used in this system.
A successful executed trade follows this pattern:

Classify the market state Check for entry conditions Wait for the SL or TP to
be hit.

Indicators:

To move along please download the indicators and template found in the first post
over at http://www.forexfactory.com/showthread.php?t=559211

Content of the indicator package:

Indicators
Daily Range Peter
ADX Crossing_v.2.0 MX 1 Alert
dijj-bb-alert
Scripts
ChgTF-All
ChangeTemplate-All
Sounds
ADX
BBdown
BBup
Templates
! ADX
Chart setup:

After applying the template your chart should look like this. Please be aware of the
similar but different abbreviations of ADX, ADXr and ADR.

Further we will refer to the indicators as following described


The red line is the ADX
The orange line being the ADXr
The black and white dashed lines represent the DMI+-
The dots appearing when a DMI cross occurs.
The Average Daily Range ADR appearing at the top left.
1. Classify the market state

The first step is to determine if the market is either trending or ranging.

The market is trending if both of the following criteria are met. If one of the
conditions is not true we are in a ranging market.

1. The ADXr is greater than 25 points.


2. The ADX is at least above one of the DMIs.
2. Trending Entry

Once we are in a trending market and all additional entry conditions are met we
immediately enter into the trade. We don't wait for the bar to close for confirmation.
If you miss an entry wait for the next trade.

Long Entry Checklist


1. We are in a trending market
2. A valid! blue dot appears
3. Can we be in multiple long positions at the same time?

Define the SL (Long trade):


Despite the fact that the ADX and the ADR tell us that we are in a trending market
whipsawing can occur and therefore a few rules are laid out to prevent us from over
trading.

The SL is the low of the candle we entered minus 10% of the 30 day ATR value.

To prevent whipsawing all following short entries (red dots) are invalidated until the
SL - Level of the last entry is breached.
Stop and reverse? Do we now immediately enter a trade in the opposite
direction if the sl is broken?
The sl of the newest trade will be the reference level which needs to be broken before
a trade in the opposite direction can be taken.

Is this correct? e.g. If we enter the trade on the 2nd blue dot and we get a new sl
after this breach we can enter short? When do we invalidate the stop and
reverse level? Once we completely scaled out of our long position or when a new
trading day starts?

A quote of yours: Candle one is your anchor candle. You will only take any kind
of buy when the extreme point( in this case the high of your initial signal candle)
is broken by a distance of 10% of the 30 day ATR of the pair in question. So in that
8 bar sequence you stay short the entire way. No longs.
The Average True Range? That is something different than the Average Daily Range
which can be found in the upper left corner.
Are we talking about the ATR here?

If we also work with a fixed value this means that no matter at what time frame we
enter the sl will always be the same level which might make the system really harsh
to trade in lower time frames. You might want to mention that and suggest a time
frame of 1h+.

Taking Profit:

We partially scale out of our position whenever the ADX goes flat.

Correct me if I am wrong
Ranging Entry

Once we are in a ranging market the dmi crosses loose their predictive power and we
start to look for a violation of the boolinger bands. Simply do as the pictures indicate.

SL
..?
Exits:
Do we have a special way to exit the trades? If the middle of the band is teached? If
the adx increases?
3. Moneymanagement
Despite the fact that the entries are 100% mechanical money management plays a far
greater role in trading than pinpointing individual trades.

........ If you want you can write a lot here.

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