Quantitative Analysis  |  DEC 2004

Trading In A Sideways Market by Anthony Trongone

Stocks & Commodities V. 22:12 (22-27): Trading In A Sideways Market by Anthony Trongone When the markets are trading in a narrow range, you are likely to become susceptible to emotional trading. But if you follow the emerging patterns of a sideways market, you can trade successfully. Without a thorough understanding of how a sideways market functions, trading in such a featureless environment can easily diminish the assets in your portfolio. You can achieve some success from trading without adequate knowledge; unfortunately, it will come without the benefit of sound planning. Although you may realize that your trading is emotionally driven, your sporadic successes will reinforce your desire to continue. And since emotional distractions are detrimental to clear reasoning, it is necessary for you to supplant these emotional impulses with a constructive strategy, one that will allow you to form your decisions from emerging price patterns. This article follows the performance of the triple Q's (QQQ) when prices begin falling after entering the upper range (resistance), or recover from the lower portion of the trading range (support). After establishing a holding pattern, it can take days for prices to come within either a supporting or resisting price range; therefore, much of your trading will take place somewhere between these boundaries. Unfortunately, the literature on how the technician should navigate within this middle terrain is inconclusive.

by Anthony Trongone, Ph.D., CFP, CTA