In Part 1 – We learned what is a sideways markets and the characteristics of the sideways markets. In this section, we are going to learn what are the major qualities required to trade the sideways markets.
What is more required during a sideways market is frequent evaluation of your strategy, keeping your emotional balance in check, and not getting into too many trades.
Five Major Qualities are required to trade the sideways markets.
1)Developing a strong balance trading rules which help traders to identify price based breakout failures (Look above the balance & Fail, Look below the balance and fail, Look above and accelerate, Look below and accelerate, etc)
2)Bringing the ability to distinguish the false breakouts with the stronger ones. Volume Price Analysis or Orderflow comes handy when identifying false breakouts)
3)Attitude to stay calm and non-impulsive as long as the clear breakout is not showing up. (This can come only by experience with market observation)
4)Focusing more on Price structure and context than the price along. Watching the price alone without the context makes one take emotional trading decisions.
5)Evaluating how other traders are behaving during the sideways markets and what is the level of frustration using tools like market profile.
It is too easy to get a view that can go wrong in a sideways market. However one should have a flexible mindset to flip their view when things are changing in the markets. Else adamantly holding to the view and not reacting to the stops or risk mangement often ends up in slow portfolio erosion.
Not only controlling your trading expectations but also the number of trades and looking to trade smaller trading opportunities are the key to be successful trading in a sideways market.