Understanding Moves and Sideways Ranges in Trading 

Content Details 

• Summary: This article explains how a move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. It also discusses how, generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range can be expected. 

• Target Audience: Intermediate to advanced traders who want to understand the dynamics of moves and sideways ranges to enhance their trading strategies. 

Expanded Response for Trading Hub Analytics 

Quote: "A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected." 

Expanded Response: 

• Definition: A sideways range, also known as consolidation, occurs when the price moves within a horizontal range, indicating indecision in the market. This often precedes another move in the same direction as the initial move, known as a continuation pattern. After the second move, a counter move back towards the range is typically expected. 

Stages: 

• Initial Move: Identify a significant price move in either direction. 

• Sideways Range: Observe a period of consolidation where the price moves within a horizontal range. 

• Second Move: Anticipate a move of almost equal extent in the same direction as the initial move. 

• Counter Move: Expect a reversal or counter move that approaches the previous sideways range after the second move. 

• Example in SPX: Suppose SPX experiences a strong upward move from 4400 to 4600. This is followed by a sideways range between 4600 and 4650. After some time, SPX breaks out of this range, moving up to 4850. Once this second move runs its course, a counter move back down towards the 4650 level may be expected. 

Practical Application: 

Trading Strategy: 

• Identify Initial Moves: Recognize significant price moves and monitor for subsequent sideways ranges. 

• Anticipate Continuations: Use the sideways range as a signal for potential continuation in the same direction. 

• Plan Exits: Prepare for a counter move after the second move has run its course, setting exit points near the previous range. 

• Risk Management: Use stop-loss orders to manage risk, especially during the counter move phase. 

Risks: 

• False Breakouts: The second move might not always reach the anticipated extent, leading to potential losses. 

• Market Volatility: Sudden market changes can disrupt the expected pattern, requiring flexible strategy adjustments. 

Indicators for Identifying Moves and Ranges: 

• Support and Resistance Levels: Use these to identify the boundaries of the sideways range. 

• Volume Analysis: High volume during the initial move and breakout confirms strength. 

• Moving Averages: Helps smooth out price data and identify trends. 

• Relative Strength Index (RSI): Identifies overbought or oversold conditions, useful for predicting counter moves.