Sideways drift, also known as sideways market or sideways trend is a phenomenon in which the price of a security, stock or commodity fluctuates between a fixed support or resistance over a prolonged period of time. A price range for a security is a set price that the security can fluctuate within, but cannot escape from. We will explore the concept of a Sideways Market and other aspects, such as trade sideways meanings as well as sideways market strategies. To do this however, it is necessary to first establish the basics.
A sideways market is built on support and resistance. A sideways market is only possible within certain circuits. These circuits are called resistances. The support is the lowest price at which stock prices bounce back up from. A resistance is the price point at which a stock's price begins to fall. This market is known as a sideways market, where the prices oscillate between support and resistance.
Sideways markets are when a security's price stays within a certain range (between support and resistance) for a prolonged period. The graph will show a horizontal line if you chart a 200-day moving average. Sideways markets are the opposite of trending markets. A trending market is one where the price moves in a certain direction. It can be either up or down, and there is no fixed support or resistance. This scenario is where the price builds smaller support and resistances over shorter periods of time, which it then breaks out of to continue the trend.
The quantity of trades can also be affected by a sideways trending market. The price of the commodity is not in any particular direction so there are equal numbers of bears and bulls trading it. This means that its quantity traded remains relatively constant.
Sideways markets are not a place for traditional trading strategies. Sideways trading strategies have been developed by traders to help them trade in this market.
1. An investor's best move in a sideways stock market is to trade sideways and expect a breakout in price trend. Although this can lead to strong returns, it is important not to depend on a breakout for returns. Even the best trader cannot predict a breakout 100% of time.
2. Sideways market strategies that are more stable can be applied to a range bound strategy, which has a target risk-to-reward ratio of 2:1.
3. If the sideways market price is expected to stay the same for a longer time, traders may be able to make a profit by placing the right call or put option based on the support or resistance.
4. Sideways traders can also place stop losses below the support level to protect themselves from losses in case of a price drop.
Trading sideways has many benefits.
1. Traders can make clear entry and exit decisions while not relying on speculation as a result of the support and resistances. Sideways trading strategies can interpret the resistance and support as signals to enter and exit. The trader can determine the maximum and minimum price and enter the market at the support level, and then sell when it reaches the resistance ceiling.
2. Trading in a sideways marketplace means that traders can enter and exit the market faster, which reduces the chance of their position being affected by an announcement from a company.
Trading in a sideways marketplace is, however, extremely time-consuming due to the increased number of trades. This increase in trades leads to an increase in transaction costs.
Sideways markets can offer investors lucrative investment opportunities if they are able identify and then implement a sideways trading strategy. With the right moves, traders can enter at a low price and exit at a high.