How to Trade in a Sideway Market?

Publication date: 13.10.2023

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Sideways markets or sideways drift occur when security prices fluctuate within a relatively stable range. Another characteristic is that they don’t exhibit any clear trend for some time.

How to understand a sideways market/sideways drift?

Sideways markets consist of relatively horizontal price movements. These occur over a while when the forces of supply and demand are nearly equal.

Horizontal trends

Horizontal trends dominate the price movement of a particular asset for an extended time before a new up or down trend begins.

Volume

Volume is a key trading indicator that tends to remain constant in sideways markets because there is equal volume between bulls and bears. It moves sharply higher (or lower) in one direction when a breakout (or crash) is expected.

Technical indicators

Chart patterns and technical indicators show where the price may flow and when a breakdown or breakout may be likely to occur.

Breakout & breakdown

To know when a breakout or breakdown will occur, you need to look at technical indicators and chart patterns. This way, you get an indication of where the price is going.

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What are the types of breakouts?

A breakout occurs when the price rises above resistance or below support. In particular, breakout price action can be described as a sudden, directional price movement. What's more, it is often accompanied by an increase in volatility and volume.

There are two types of outbreaks:

Upside breakout

An upward breakout indicates that the price will start moving higher. This indicates that traders may enter long positions or exit short positions.

Resistance level

Once a resistance level is broken, its effect reverses and turns into a support level when the price corrects or declines.

Downside breakout

A breakout to the downside, causes prices to trend downward. This indicates that traders may enter short positions or exit long positions.

Support level

Once a support level is broken, its effect reverses and becomes resistance when the price corrects or declines.

High volume breakouts

Breakouts that occur on high volume (compared to normal volume) show greater conviction, meaning the price is more likely to move in that direction.

Low volume breakouts

Breakouts that occur on low volume (compared to normal volume) indicate weaker belief and are more prone to failure. Price is unlikely to move in the direction of a breakout.

What is resistance?

Sideways trend

A sideways trend involves horizontal price movement that occurs when supply and demand remain virtually the same.

Consolidation

This usually occurs during a consolidation phase before the price continues a previous trend (trend continuation) or reverses into a new trend (trend reversal).