Sideways Markets: To Trade or Not To Trade

Hey Guys! This is Nathan Tucci, and I have been struggling with something lately: Do sideways markets make easy profits for traders, or is it a death-trap waiting to happen?

I see two very reasonable, logical answers to both sides of this argument, and I will explain them briefly so you know where I am coming from, then I would love for you to leave a comment explaining your view about the matter.

There is the idea that a pair moving choppily across your charts is easy money for a trader because in this kind of choppy price-action, all one has to do is buy the pair when it starts to get to the bottom of the choppy channel, and sell it when it gets to the top of the channel. Now we are obviously not talking about massive pip gains, but if it’s sideways price-action on a daily chart, you can make 200 pips from the top to the bottom of the channel by selling high and buying low. In this kind of trading, the choppiness of the market almost serves as a safety net because you can trade without too much worry of it taking off on a long trend the other way; you have a lot of confidence that it is going to come back to the other side of the channel.

Let’s look at a chart to better visualize this side of the argument:
(you can click the chart to view in full size)

Okay, so in the above chart of the GBP/CAD, there has been a 6 month long channel between 1.6100 and 1.5400. Logically, you could say that this would make for very easy trading because the channel is so well-defined that any time the price got near 1.6100 you could sell and make a few hundred pips, and any time it got near 1.5400 you could buy and make a few hundred pips. This kind of trading would be simple, strategic and profitable; BUT there is the other side to this argument.

The other side says that a choppy market is not trade-worthy. That it makes no sense to trade in a sideways market when you can find other pairs that are trending up and down. After all, without any kind of a trend on your side, how could you justify a longer-term trade (like the daily ones we were talking about above). This side of the argument also suggests that there is eventually going to be a break out, and that if you are trading the top and bottom of the channel, you are going to eventually be on the wrong side of that break-out. What if you buy the low of that channel and that low ends up being the start of a new down trend?–Not good for you.

This side of the argument also says that most tools and indicators that should be used as an asset to traders do not work for this kind of a market so it is foolish to not take advantage of these assets, I mean, try drawing a trend line in the GBP/CAD daily chart. Why not use all of these great tools you have in your arsenal, because most of us need all the help we can get.

So, I understand both sides of the argument, and both seem to make sense, but how can such opposite views BOTH be correct? This is where you guys come in, I want to know what you think about trading in sideways markets. I know that the easy answer is “Oh, each trader has his own style, and it’s about what you are comfortable with”, but I want a real opinion. I mean, it’s not really about your comfort, it’s simply about making money–which side of this argument is going to help me make money? That’s what I want to know from you.

Thanks for reading, and leave those comments!!

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