How to Make a Sideways Trend Work for You: Trading Strategy

When it comes to the stock market, there are two types of trends: up-trends and down-trends. An up-trend is when the prices of a security or group of securities are consistently going up over time. A down-trend is, of course, when prices are falling.

Sideways trends go by many different names. Some traders refer to them as “trading ranges.” Another name for a sideways trend is a “channel.” A channel is simply a range bound by two parallel trendlines. Finally, some traders refer to a sideways trend as a “horizontal trend” since the price action is horizontal or flat.

How To Identify a Sideways Trend?

Now that you know what a sideways trend is, how do you identify one? There are a few ways to identify a sideways trend:

• Look for two parallel trend lines connecting the price action’s highs and lows.
• Check whether there is a pattern in the series of higher highs and lower lows.
• Also, look for a series of candlesticks with small bodies and long wicks.
• Finally, look for a series of candlesticks with equal highs and lows.

Candlesticks, in particular, can be very helpful in identifying sideways trends. That’s because they provide a clear visual picture of the market’s supply and demand forces at work. The candlestick bodies represent the distance between the open and closed prices, while the wicks show the high and low prices.

When there is little difference between the open and close prices, there is limited buying or selling pressure in the market. This event is often seen during sideways trends, as buyers and sellers are evenly matched. Long wicks pointed either up or down, on the other hand, show that there is a lot of buying or selling pressure, but the pressure is not enough to create a breakout into a new trend.

Therefore, since the pressure on either side is insufficient, the price doesn’t necessarily move in and assumes a flat line. You can also identify a sideways trend based on the previous trend.

For example, if the market was continuously in an up-trend, you can expect the price to start consolidating sideways at new resistance and support levels. The same goes for a down-trend. If the market was in a downtrend, it could hit new support levels and start moving sideways.

A breakout is when the price of a security or an asset moves outside of a defined trading range. This can be either up or down. For you to take a trade in the breakout direction, you need to know where the breakout point is. There are a few ways to do this:

• The first way is to wait for a candlestick to close outside the trading range. This candlestick is called a “breakout candle.”
• The second way is to use a technical indicator such as the Bollinger Bands. Bollinger Bands are two standard deviations away from the 20-period moving average.
• The third way is to use a momentum indicator like the Relative Strength Index (RSI). The RSI measures the speed and change of price movements.

Using any of these methods will help you determine where the breakout point is.

The logic behind this strategy is simple: when the price breaks out of a sideways trend, you’re buying at the beginning of a new uptrend. Conversely, when the price breaks below the lower trendline or support line, you’re selling at the beginning of a new down-trend.

Therefore, you stand a chance of making more profits if the price breaks into a bullish trend and cutting your losses in case of a bearish trend. Here’s an example of what I’m talking about:

(Image Courtesy of Tradingview)

As you can see from the chart above, the price of Google (GOOGL) was in a sideways trend for most of 2018. However, in early 2019, the price finally broke out above the upper trendline, signaling the start of a new uptrend.

If you would have bought when the price broke out above the trendline, you would have made a nice profit as the stock continued to trend upwards.On the other hand, if you had sold when the price broke below support levels and started going down, you would have avoided a lot of pain as the stock dropped sharply.

Key takeaways:

• Trading with the trend is one of the best ways to make money in the stock market
• When prices rise, buy stocks that are breaking out to new highs. When prices are falling, sell stocks that are breaking down to new lows.

With this strategy, you would wait for the price to break out of a sideways trend before taking a position. For example, let us say the price of Bitcoin was in a sideways trend between $17,000 and $20,000. Before taking a position, you would wait for it to break out above or below this range.

Once the price breaks out of the range, you would buy or sell depending on the direction of the breakout. The difference between trading traditional assets and cryptocurrencies is that you can also trade both sides of the market with crypto. This means that if the price breaks out to the upside, you can buy Bitcoin; if it breaks out to the downside, you can short or sell it.

Trading both sides of the market allows you to make money regardless of which direction prices are moving. Remember, however, that the market moves rapidly in the world of cryptocurrencies; you need to be able to act quickly when a trade signal appears.

While a sideways trend in traditional markets may last for weeks or even months, a sideways movement in the crypto market can last for days or even hours. One of my friends made over $100,000 in a single day by shorting Bitcoin when it broke below $15,000, then repurchasing it when it broke just slightly above $11,000.

Using the sideways trend strategy, he could make a massive profit in a very short period. Another friend of mine made over $50,000 in just a few hours by buying Ethereum when it broke out above the $250 resistance level and selling when it reached $850.

Again, using the sideways trend strategy allowed these guys to profit significantly in just a few days. If you want to be successful in trading, you need to have a strategy that you can follow consistently. The sideways trend strategy is one of the best ways to make money regardless of whether prices are going up or down.

How can I tell where a sideways trend will go?

An excellent way to estimate where a sideways trend is going is by looking at the upper and lower trendlines. The price will likely continue moving in the breakout direction (above or below the trendlines). Also, use candlesticks to help you estimate where the price is likely to go.

How to find sideways trends?

The best way to find sideways trends is by using a stock screener or a crypto screener. Both tools will allow you to filter for stocks or cryptos in a sideways trend. Another effective way to spot sideways trends is by looking at the price action on a chart. If the price trades between two horizontal levels, it is likely in a sideways trend.

What is the best timeframe for trading sideways trends?

The best timeframe for trading sideways trends depends on your investment horizon. For example, if you are a day trader, you will likely want to trade on a shorter time frame, such as on the 5-minute or 15-minute chart.

On the other hand, if you are a swing trader, you will likely want to trade on a more extended timeframe like the 4-hour or daily chart. The bottom line is that you should choose a timeframe that fits your investment horizon and trading style.

What is a good indicator for a sideways trend?

The Bollinger Band is one of the best indicators for a sideways trend strategy. In addition, the Bollinger Band is a tool that helps you identify when the market is overbought or oversold.

Another good indicator for making money with a sideways trend is the MACD (moving average convergence divergence). The MACD is a momentum indicator that can help you identify when the market is about to make a move.

The Bottom Line

Sideway trends are common in the financial markets, and they can last for extended periods. Many traders try to trade these trends and fail miserably. It’s not true that they are unlucky.

They just lack patience and preparation. There is a famous quote from Oprah Winfrey – “Luck is preparation meeting opportunity.” The key to trading a sideways trend is patience and waiting for the proper setup.

When you see a sideways trend, the first thing you need to do is to identify the range. Once you have done that, you can start looking for trades. It can be exciting and sometimes overwhelming when you see a long sideways trend. You might be thinking, “should I buy at the top of the range or sell at the bottom?” The answer is neither.

The key to trading a sideways trend is patience and waiting for the breakout point. Once you have identified the range and the breakout point, you can enter the trade with a stop loss below the recent low (for a long position) or above the recent high (for a short position).