In any given moment the market can move in one of the three directions; up, down or sideways. As you probably already know, the flat market (synonymous with the sideways movement) is considered by many to be not the best time to trade. The thing is, when the market is flat, it is hard to make sound predictions. Low volatility means that potential profit is lower than during the periods of strong movements. However, when the market is flat and the trading activity is low, there are a lot of things a trader can do.
As a trend trader, you want to stay in the market when momentum is strong. And it doesn’t matter whether the trend is positive or negative, as both can offer trading opportunities. During the flat market, however, most professional traders abstain from opening new deals.
Here is the list of three things you could do while waiting for the market to gain momentum.
It may not sound engaging, but this step is of utmost importance. A trading journal is a collection of all your trades and information related to them. What kind of information should it be? Everything you find relevant, from your emotional state to market observations. Put down market conditions the moment you open and close the deal, what went well and what could be improved, your mistakes and observations. When the market consolidates (becomes flat) it is time to review your trading journal, estimate the effectiveness of your trading system and make necessary adjustments. You can read more on the topic of trading journals in this article. Applied correctly, a trading journal can improve your overall trading performance.
It is no secret that almost all exchange-traded assets are heavily affected by fundamental factors — economic, social, political etc. When the market stands still, there could be a fundamental explanation, that you could find and use for future reference. For example, when a company stock is traded in a narrow corridor, it probably means that the market is expecting a major announcement or an earnings report. During the flat market it is wise to carry out seasonal or sector analysis with the purpose of identifying new trading opportunities. Those of you interested in stock trading can also dedicate some time to reading economic and company reports.
The flat market is also the time when you can conduct technical analysis with the help of available tools and indicators. Technical analysis can complement your trading system and deepen the understanding of the bigger picture. It is during this step that you can take a look at various assets on different timeframes and explore the market for abnormalities.
You can also evaluate your trading strategy and adjust it in accordance with constantly changing market conditions. When one indicator stops working it may be wise to try something else. Or to reshape your trading system completely.
The flat market is definitely not the most engaging part of the trading process, yet it is absolutely necessary to use the time when the price moves sideways intelligently. Take a break, evaluate your performance and try to spot new trading opportunities.Trade now