Intermediate · Lesson 1 of 11 · 7 min read
Trending or sideways?
Markets either trend or move sideways, and most tools only work in one of the two. Knowing which one you are in is half the job.
What a trend looks like
In an uptrend, price makes higher highs and higher lows, like climbing stairs. In a downtrend, it makes lower highs and lower lows. Pullbacks happen along the way, but each one stops before the last swing.
What a sideways market looks like
In a range, price bounces between a ceiling (resistance) and a floor (support) without getting anywhere. Highs and lows sit at roughly the same levels, and moving averages go flat and tangle together.
Markets spend a lot of their time sideways. A trend tool used in a range gives signal after signal that goes nowhere, and a range tool used in a strong trend keeps telling you to fight the move.
Which tools suit which market
| Market | Tools that tend to work | Tools that often fail |
|---|---|---|
| Trending | Moving averages, Supertrend, Parabolic SAR, trailing stops, flags and pennants | Selling “overbought” or buying “oversold” on RSI and Stochastic |
| Sideways | Support and resistance, RSI and Stochastic extremes, range highs and lows | Trend-following signals, which flip back and forth |
How to tell which one you are in
| Clue | Trending | Sideways |
|---|---|---|
| Swings | Higher highs and lows (or lower) | Highs and lows at similar levels |
| ADX | Over 25 | Under 20 |
| Moving averages | Sloping and spread apart | Flat and tangled |
| Parabolic SAR | Few flips | Many flips |
| Bollinger Bands | Widening, price riding one band | Narrow, price crossing the middle |
ADX measures how strong a trend is, not which way it goes. The Parabolic SAR dashboard on BTM has an ADX dial: grey under 20, green over 25.
Gold on the 1-hour chart is making higher highs, ADX reads 32 and the 50 EMA is rising with price above it. That is a trend. Rather than selling because RSI says “overbought”, trend traders wait for a pullback towards support or the moving average and look to buy.
A week later ADX has dropped to 16, the EMA is flat and price keeps bouncing between two levels. Now the same trend signals would keep failing, so traders either use range tools or simply wait.
The change from one to the other
Ranges do not last for ever. Before a new trend, price often squeezes into a tighter and tighter area, such as a triangle, a wedge or a narrow Bollinger Band. Breakouts from a squeeze can start a trend, but many fail, so wait for a candle to close outside the area. The Triangle & Wedge Finder and Auto Trendlines draw these areas for you.
Common mistakes
- Using the same tool in every market condition.
- Selling a strong uptrend just because RSI is over 70.
- Taking every Supertrend or Parabolic SAR flip in a sideways market.
- Calling a single big candle a new trend before the swings confirm it.
Check yourself
1. Price is making lower highs and lower lows. Is the market trending or sideways?
Trending, downwards.
2. ADX reads 14. What does that suggest?
A weak trend or a sideways market. Trend-following signals are less reliable.
3. Parabolic SAR has flipped 11 times in the last 100 candles. What kind of market is this likely to be?
Choppy and sideways: the dots keep flipping because price is not going anywhere.
Try it on BTM
For education only, not financial advice. Trading carries a high risk of losing money, especially with leverage. Only trade with money you can afford to lose.
For educational purposes only. Nothing here is financial advice. Past performance does not guarantee future results, and trading carries a high risk of losing money, so only trade with money you can afford to lose. Read the risk warning.