Play Both Sides With a Bilateral Strategy

These two numbers need to be quantified and compared. In most cases, one side will show more potential than the other side. This can be frustrating, because the calculation is independent of the odds that a breakout or breakdown will take place. So, for example, one side might show great reward potential but low odds, while the other side shows little reward but high odds.

Fortunately, many of these patterns will tell you when the move, higher or lower, is about to unfold. Congestion often narrows into a common trigger point for both sides. We see this in triangles, in which two trendlines converge in price and time. Bilateral setups can show this convergence through simple lines or more complicated volatility cycles.

Volatility drops through the formation of most bilateral patterns. It tends to hit a definable low, and then trigger sharp price expansion. It's our job to examine price contraction near support or resistance levels to find obvious trigger points. Then, it's just a matter of waiting until a level is mounted or broken, and trading in that direction.

iShares Russell 2000 eSignal

Bilateral setups work best when they fit into larger cycles that affect broad index movement. For example, a short sale in a bear market makes more sense than a long position, as long as the entry trigger is clearly defined. However, this is a discretionary strategy, so the trader can still choose execute the long signal if all the ducks line up in a row.