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How to trade when a market is moving sideways

by , 22 October 2015

As a trader, one of the most lucrative ways of trading is to trade with the trend. This tends to be uptrends and downtrends.

But there are times when the market trends sideways. After the recent volatility on the markets over the past few months, this is what you may be facing when trying to find trades.

So what should you do as a trader when there isn't an upward or downward trend in place?

Read on to find out one way to deal with it…

How can you spot a trading opportunity when there is no trend?

There are times when the market, or an asset you trade, will bounce around within a range. It doesn’t show any clear trend, it just moves sideways.

This is different from uptrends and downtrends. You can either see the market is rising by a series of higher highs and higher lows or it is falling, giving you lower lows and lower highs.

These trends can give your obvious trending opportunities.

When a market is moving sideways, you can say it is range bound or it’s trending sideways, Frank Hemsley in Profit Watch explains.

When the market moves sideways, there’s generally an even number of buyers and sellers. Each time the market makes a move, it consolidates. This gives you no clear direction.

How to trade when the market isn’t in an uptrend or a downtrend

When the markets are like this, one option you have is to play the range.

This involves buying when the price is at the support line and selling when it hits the resistance line. You can also sell when the price is at the resistance line and buy at the support line.

If you opt to go with such a strategy, it’s a good idea to sit on the side lines and watch to ensure the support and resistance levels are reasonably solid before you trade it.

By trading the range, your profits are limited to the range, and so is your downside. But you need to watch for the price breaking through support and resistance levels.

Set your stop losses just outside the support and resistance levels depending on whether you’re going long or short to manage your risk.

So there you have it. How to trade when a market is moving sideways.

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How to trade when a market is moving sideways
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