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Nial Fuller

NIAL FULLER
Professional Trader, Author & Trading Coach

3 Fool Proof Tactics to Distinguish a Trending Market From a Sideways Market

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By in Forex Trading Strategies By Nial Fuller Last updated on | 17 Comments

trendingmarketOne of the most important things we have to do as price action traders, is determine whether a market is trending or not. The answer to this will determine which approach you take to a particular market, so it’s critical that you understand how to properly differentiate a trending market from one that is sideways.

If you’ve been struggling with this recently, or you are new to trading, this lesson is for you. After reading it you should feel that you have a much clearer understanding of exactly how to distinguish a trending chart from a non-trending chart.

Look for trending price action patterns

This first tactic has been around for literally hundreds of years and for a very good reason; it works.

My favourite way to determine if a market is trending or not, is to simply look at the price action of that market. Very simply, I look for a repeating pattern of Higher Highs (HH) and Higher Lows (HL) in an up-trending market and Lower Highs (LH) and Lower Lows (LL) in a down-trending market.

Here is an example of a market that was obviously trending lower as evidenced by the repeating pattern of Lower Highs and Lower Lows…

trending1

Here is an example of a market that was obviously trending higher as evidenced by the repeating pattern of Higher Highs and Higher Lows…

trending2-11

Tip – I often get emails asking me how I know when a new trend has begun or an old one has ended. Well, you use this same tactic of looking for price action patterns of HH HL or LH LL. For example, once you see a pattern of HH and HL has been interrupted or broken, by price making a Lower High, it’s an early-warning that the uptrend may be coming to an end.

To truly consider that the up-trend has ended and a new down-trend has begun however, we need to see at least one pattern of LH and LL following the uptrend. That means, once price makes the first Lower High (so it fails to make a Higher High), we would then need to see it make a Lower Low following that Lower High, at this point, we can start looking to be sellers.

Look for parallel levels

We can also use key levels of support and resistance to determine if a market is trending or not. The basic approach is to simply look for price that is clearly oscillating between parallel levels. If it is bouncing between two parallel levels, then you have a range-bound or sideways market, not a trending market.

There are two basic types of sideways markets; a ‘choppy’ one and a range-bound one, for more on this, check out my recent lesson on how to trade a sideways market.

In the example below, we can see that price was generally moving sideways between parallel levels of support and resistance. Notice that price won’t always hit these levels ‘exactly’, but if the general movement is sideways between two obvious levels, you have a non-trending, range-bound market.

trending3

Moving averages

The next tactic that we can use to distinguish a trending market from a non-trending market is the use of moving averages. Moving averages provide an easier visual clue for beginners, but they need to be used in combination with the price action tactic discussed in point one above, for reasons I will discuss soon.

I typically use the 8 and 21 day exponential moving averages (emas) on the daily chart time frame as a quick-guide for trend as well as dynamic support or resistance (value) areas.

There are basically two things to look for when using moving averages to distinguish a trending from non-trending market. One, is the direction of the cross; are the moving averages crossed up or down? I only use the ‘crossover’ to determine direction, I don’t use it in the traditional “moving average crossover entry system” that some people teach.

The second thing to look for is if the moving averages are diverging (moving away) from each other, as this is indicative of a very strong trending market. However, you need to combine the moving averages with the price action tactic from point one, because moving averages alone will sometimes fool you if a market is range bound. They are really only used as a quick reference for trend direction and to see value areas to look to buy and sell from.

The ema’s themselves mark a dynamic (moving) support and resistance zone or layer; the ema layer is the area between the two ema’s, such as the ‘8 and 21 day ema layer’, and we can watch for price action signals from this layer as price retraces back to it, to trade in-line with the trend.

trending22

The main caveat to using moving averages for trend identification, is that in a range-bound market they can trick you. This is why you need to also use the price action method I discussed in the first point above, to act as a ‘filter’ of sorts for the moving averages.

For example, in a range bound market as described in point 2 above, if you put moving averages on your chart, they will cross up and down as price oscillates between the parallel levels. So, if you follow the moving averages in a range-bound market, you will continuously get whipsawed as price will generally change direction right as the moving averages cross. For this reason, I prefer tactic 1 above, but the moving averages can be a nice complement to that tactic and as I mentioned, they can also provide us with good ‘value areas’ in a trending market to look to buy and sell from.

Conclusion

The trend is indeed your friend, and you want to be totally clear on whether a market is trending or not before you start trying to trade it. Hopefully, this lesson has clarified how to distinguish a trending from a sideways market, so that you can improve your chances of catching big moves in the market. To learn even more about trading trending and sideways markets, check out my price action trading course.

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About Nial Fuller

is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 20,000+ students since 2008. In 2016, Nial won the Million Dollar Trader Competition. Checkout Nial's Professional Trading Course here.
  1. Yakawonya Rutson September 16, 2019 at 4:44 am

    Always out with a winner post A teacher to cherish Thanks many thanks over

    Reply
  2. Nour September 15, 2019 at 11:45 am

    Nial, you are the godfather of the Forex trading.

    Reply
  3. NKAMA September 15, 2019 at 12:55 am

    You are too much sir. By this you have solved most of my problems.

    Reply
  4. Medi September 14, 2019 at 5:29 pm

    You tha God sent!

    Reply
  5. NGUYEN QUOC THANG September 14, 2019 at 1:28 pm

    Pls support me to explain more about ” Event area ” in the line ” Retrace Entry Back to an Event Area or Prior PA signal.

    Thank you
    THANG

    Reply
  6. Mahmudul Hasan September 14, 2019 at 1:32 am

    Super Nial bro…..

    Reply
  7. Diário de um Poupador March 5, 2018 at 1:32 am

    Hi, i am a brazilian guy who trades for years. I pause my trades during some years, and i came back about 2 months ago. I’ve been trying a strategy with short take, and it has given to me a lot of profits. I am trying to make my mind strong to ignore the market’s movement after i book profit. You have said a very right thing here: the market always makes a retraction.

    This article was very good, thanks. Keep it that way. God bless you.

    Reply
  8. Solomon Olusegun Oyeniyi December 13, 2017 at 9:24 am

    Thank you for this article.

    Reply
    • Liton khan September 16, 2019 at 12:14 am

      Very nice Boos.ok go forawd.

      Reply
  9. GANDUS December 4, 2017 at 6:10 am

    Great always to hear you big brooother Nail. God bless you. timely article for me. love

    Reply
  10. Noor Azman Abd Aziz November 26, 2017 at 2:10 am

    Nice and very interesting. This article answer the questions why i always close trades with losses while actually I have been profitting during the trading session.

    Reply
  11. Sboniso Malambule November 24, 2017 at 6:22 pm

    ive bee reading your lessons im impressed

    Reply
  12. Azmi Yusoff October 17, 2017 at 2:52 pm

    Interesting article. This happen everytime. The idea of wanting to wait a little more time may cause us to lose what is supposed to be a profit instead.

    Reply
  13. Ayanda Mabuza September 18, 2017 at 10:56 am

    reading such artecles really opens my mind.Thanks Nail

    Reply
  14. Roy Peters September 1, 2017 at 2:39 am

    This happened to me recently on Eurgbp. Up 200 pips and thought it’d go higher. Next day market came down and I booked only 40pips!
    I learn a big lesson.

    Reply
  15. Rafari July 31, 2017 at 1:29 am

    ok, its been almost 2 years since I start to learn how the market move. I can say most of your articles give me a vision about how to, what to do and don’t. It’s cool because I start move to learn draw some major snr, I got stuck on making it, but your articles show me some clever way to draw “a key level” and some short term. I’ll try my best to practice it everyday !!!

    Thanks Nial, You’re Awesome !

    Reply
  16. kgothatso July 28, 2017 at 6:00 pm

    U ar really a genus.sir u teached me that i should take a risk than to lose the chance **#great things come to those who hustle (lovely)$$$$$

    Reply
  17. Alan Gillanders June 25, 2017 at 3:25 am

    Hi Nial,
    Thanks for the lesson. This has been my problem for some time. Greed. Always waiting to take more with a small investment. My profits evaporate and majority of times end in a loss.
    In the last 6 weeks I have been taking the small profits. 100 – 200 points instead of trying to get 500-1000 points. seems to be working ok. Thanks again

    Reply
  18. oluwatosn Matthew June 23, 2017 at 5:50 pm

    That’s a good trading guide. Thanks nial.

    Reply
  19. Ages Justice June 22, 2017 at 5:40 am

    Keep it up Mentor. God bless you more!

    Reply
  20. Louis June 21, 2017 at 11:43 am

    This is exactly what was missing from my trading. Realistic exit plans. Thank you Nial.

    Reply
  21. endurance oki June 21, 2017 at 8:05 am

    thank you sir for your well prepared article. Im a victim of this very situation , i’ve almost hit my profit target then i said i should let the profit run but to my very face , the profits were evaporating until i closed the trade .

    Reply
  22. DAVID SHUBE June 20, 2017 at 7:48 pm

    Thanks Nial, booking profits on-time is right, cos too much emotional traits is involved when one realized that the trade is going to retrace unexpectedly.

    Reply
  23. PEERALLY June 20, 2017 at 6:21 pm

    Thank you, Nial.

    Reply
  24. Kate M June 20, 2017 at 6:49 am

    Thanks Nial, way to go. You keep writing evolving lessons like these, Ill always have something to learn. And again an opportune time to write this particular article, I think you are the Yoda of trading:)

    Reply
  25. Lucas Obiora June 19, 2017 at 9:07 am

    Thanks Nial, that’s an eye opener to me, I have that problem of letting profits run into losses, thank you very much for the article.

    Reply
  26. Kay June 19, 2017 at 8:49 am

    Thank you Nial, well explained and organized article. Definitively help me to prepare my Profit plan. Regards

    Reply
  27. smg June 19, 2017 at 3:17 am

    Thank you

    Reply
  28. richadi36 June 19, 2017 at 2:07 am

    Thanks Nial. I really got immense knowledge about booking profits.

    Reply
  29. Suleiman Bhadmus June 18, 2017 at 11:14 pm

    Amazing,am definitely going to include all this point in my trading plan. Though am still on demo, but what have learned from this article in very key to a successful trading.
    Thanks a lot Mr.Nail Fuller.

    Reply
  30. Matt June 18, 2017 at 5:25 pm

    This happened to me last week. Was up 700 proffit and closed with 700 loss because i had such an attachment to what i thought was a fullproof longterm move in one direction so i wanted to ride the waves but it looks like it wasnt the long term move in that direction i thouht it was.

    Reply
  31. akhtar butt June 18, 2017 at 4:44 pm

    Hi, Dear Nial Fuller, , excellent, well-explained with reality and experience. Thank, cheer

    Reply
    • Bebe April 30, 2019 at 7:57 pm

      Excellent article,Thanks Nail

      Reply
  32. Akpos June 17, 2017 at 6:46 pm

    Nice….this has been my bane in trading. Not booking profit….

    Reply
  33. John Promise June 17, 2017 at 6:02 pm

    Thanks Nial. My mentor.
    Remain blessed.

    Reply
  34. Thendo June 17, 2017 at 4:58 pm

    Thanks Nial.. great advise. Am looking forward to not closing or closing when the trade goes against you but hasn’t hit your stop loss…

    Reply
  35. Luis June 17, 2017 at 12:20 pm

    Thanks so much Neil as always, great article!, mm please i have a question, what about the case that all the other trading books and gurus says about let profits run until at least 1:2 Risk reward ratio? , because they say if i close before that 1:2 im cutting my profits and that can damage me in the long run! , but in the real life im bored to wait sometimes for a 1:2 and when im at 90% to achieve that profit target the markets turns down eliminating all my profits and making a loss for me, but when i book the profits i see my account growing, what you can reccomend me about that?.

    Reply
  36. Bruno June 17, 2017 at 10:48 am

    Before reading the whole article, I’m writing this! Just the header alone struck the cord. Toy, Nial, are a mind reading mentor! I’m at that stage in my trading where my edge is consistently delivering profits! But, yes, most times, these profits evaporate. Alot is happening around the political and business world and price is fluctuating between these events. Yes, price still does was it’ll do, but the whipsawing is alarming! I can’t say enough how soothing this article is to me because I make sizeable % of my Acct only to watch some diminish or disappear, even into losers.

    Thank you for this article.

    Reply
  37. Mavhungu Lufuno June 17, 2017 at 9:14 am

    Amen

    Reply
  38. Elpadrino June 17, 2017 at 4:54 am

    Thanks Nial #Legendary

    Reply
  39. Alin June 17, 2017 at 4:20 am

    I am one of those loosers who do not book much profits on the trades, because I’m setting
    way too large TPs. Thanks for the posting!

    Reply
  40. Shankara Motay June 17, 2017 at 3:59 am

    Thank you very much

    Reply
  41. Rongsquare June 17, 2017 at 12:44 am

    Amazing thank you Nail

    Reply
  42. Mike Coe June 16, 2017 at 11:27 pm

    Your articles just keep getting better and better, Nial! Great stuff! Thank you very much.

    Reply
  43. Siyabonga Mkhize June 16, 2017 at 11:10 pm

    Powerful thank you sir

    Reply
  44. KRISTOFA OKENTA June 16, 2017 at 9:37 pm

    Good Teaching As Always.
    Thank you For Sharing Your
    Heart With Us.

    Reply

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