In the market, stocks, currencies, and other assets can move in a particular price range over a certain period of time. They either grow (bullish trend), fall (bearish trend), or stay neutral (sideways trend). In trading, a sideways trend, or a trading flat, is indicated by a sideways channel. Since a sideways market occurs when the price moves in a range without forming any distinct trend, it can be compared with an uptrend or a downtrend in terms of technical analysis. In fact, the sideways trend builds up on the chart the same way the bearish or bullish trend does. That is, it has:
resistance line (highest price);
support line (lowest price);
ups and downs of the asset price within a corridor limited by these lines.
When it comes to the sideways trend, there must be at least four price movements on the chart. From point 1, the price goes up to resistance 2, then down to support 3, and up again to resistance 4. Upward steps 1-2 and 3-4 are made at approximately the same price. The same applies to downward steps 2-3, 4-5, and so on.
The main difference is that when it is the sideways trend, resistance and support lines pass:
● either horizontally;
● or converge at an angle.
In the first case, this is a classic flat, where each following minimum/ maximum equals the previous minimum/maximum respectively.
In the second case, this is a triangle, where each following maximum gets lower and each following minimum gets higher. Lines drawn between these marks intersect at a certain point on the trading chart.
The sideways trend emerges when there is a balance between demand and supply. When sellers (bears) and buyers (bulls) are getting stronger, a consolidation phase begins. However, an uptrend or downtrend will still emerge within the sideways channel sooner or later.
Depending on the previous movement, the sideways trend will end when:
a reversal occurs (for example, when buyers start to actively close their trades);
the previous trend extends but within slightly changed price limits.
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