Upon close examination, e-mini traders find that price action falls into two broad categories. The majority of the time the market is range bound or forming a centralex continuation channel. At other times, however, the market breaks out of these continuation channels and begins to trend up or down. I have yet to find a satisfactory definition for the term “trend,” and I have been working on it for nearly 25 years.
At this point in my trading career I prefer to view trends as any sustained directional movement either up or down. Of course, I am well aware of that many “purist type” e-mini traders have mathematical criteria, or specific definitions of just is exactly what constitutes a trend. I would expect these individuals to review my broad interpretation of trending behavior as faulty. In general, I have found most of these “purist type” definitions unsatisfactory for my scalping trading technique. I am interested in only small segments of the market and tend to view trends as I referred to them early in this paragraph. If the market is moving in a specific direction for a sustained period of time, I will conclude that the directional movement is indicative of the direction of short-term e-mini prices. In short, I take a very short term of my trading horizon and nothing in my style relates to swing trading or other trades with a lengthy time frame.
That being said, a continuation channel is a period of sideways movement typified by a specific range that serves to hold market pricing in a narrow band. Many trading educators discourage trading in channels as they can be unpredictable and volatile. By ignoring any sort of channel based trading activity, e-mini traders are taking themselves out of potential profits any time the price action begins to form a channel, which is nearly 60 to 70% of the time.
Why do people avoid continuation channels?
It is my view that most systems based trading methodologies use oscillators and indicators to indicate potential e-mini trading setups. In a trending market, oscillators and indicators can be accurate and mostly helpful. But there is a problem with indicator based trading, especially in continuation channels. Most indicators lag the market by several bars, which compounds the problem of trading in channels. In my view, most oscillators and indicators are of little value in channeling market. On the other hand, I really do not require an indicator to inform me that the market is trading in a channel or is trending. A simple glance at the chart being traded clearly indicates choppy and narrow trading ranges, and trends are self-evident.
For the purposes of this article, I am not going to elaborate on how to trade trending and channeling markets. On the other hand, my trading style allows me to trade channeling and trending markets. That statement comes with a caveat, however, as the techniques used in channel trading are diametrically opposite than techniques for trading a trending market. To be sure, most charts present trading opportunities and trading methodologies are dictated by the market structure at the time of trading. On the other hand, I am predisposed to trading with the trend, or previous trend, when I initiate trades in the channel and I always trade back in the direction of the channel.
Trading trending markets simply requires a good entry in the direction of the trend. There are a plethora of well documented e-mini trading methodologies that provide quality entry points in a trending. To encapsulate my view on trends vs. channels is quite simple, really; channel trading requires trading back into the channel and trending markets you trade in the opposite direction of the channel.
The point of this article is a simple; an e-mini trader must utilize a specific strategy for trading trends, and a completely different and almost opposite e-mini trading strategy for trading channels. This statement may, on the other hand, be interpreted as an indictment of strict system based trading systems as they are generally ineffective when trading channels. We practice identifying trends in my trading room and trading them; then we switch gears (when a channel develops) and practice the e-mini trading techniques that are suited to channel training.