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Flat Market
A Complete Beginner Guide to Flat on the Market
Before we can answer the question in the title, we need to know what a flat is. In writing, this is described as an action that is unclear whether it is going up or down. Simply put, the price is rising, and the area highs and lows are at the same level. People think the market is 70% flat, with only 30% of strong uptrends and downtrends. We could say that these times are when prices are in balance, but as soon as the price breaks out of the flat, we can expect it to move.
How to Identify a Flat Market
A flat market, also known as a sideways market, is a market condition where there is little to no price movement, and prices tend to trade within a narrow range. Identifying a flat market typically involves analyzing price charts and looking for periods where the price is moving horizontally with little to no directional bias.
Best Strategy for Trading Flat Markets
Each new high and low should be higher than before in an upswing. When this happens, we call the trend “bullish.” Here, it’s important to only look for ideas that show growth. And if each new high and low is lower than the last one, this is called a decline.
Here are signs that prove the downturn should be looked for. Lastly, a flat movement happens without clear direction, and prices advance from the resistance level before bouncing off a support line. We can either buy or sell at this time.
Let’s look at the EUR/USD chart and see what a flat looks like. As we can see, the top of the channel is around 1.1535. When prices hit this line, they move away from it and to the nearest area of support. And from 1.0580, they bounce off again and go to the top edge of our channel.
How to Trade in a Flat Market
This kind of trend is good for someone who is just starting. Beginners tend to want to average their positions since and in a flat, the prices go back to where they started, which is different from big trends. So, we can easily keep a loss trade open and even earn money from it. We should adhere to the rules for managing our money and try to work within a system instead of selling based on our feelings.
Moving Averages, Convergence and Divergence
A difference in the MACD
If the Moving Averages work effectively in a strong trend, and there are no divergences in the trend on the MACD, then this is a good sign. We can even say that the market goes flat as soon as all MACD signs come true one after the other. Let’s look at the USD/CHF currency pair. We switched to H1 to use the MACD.
Chart research is based on putting together different lengths of time. When traders see a flat on a bigger timeframe, they look for entry points on smaller time frames. Divergences that happen when the top or bottom of our channel is tested are the ones we should pay attention to. On the other hand, if the signal appears in the center of the channel, we should probably ignore it.
As we can see, if one of the lines was checked and a signal showed up on the MACD, the prices would likely move back into the channel and in the opposite direction. Follow the rules to get into the market. For us, it’s essential to wait until the signal line moves out of the histogram region of the indicator.
Relative Strength Index
The overbought and bearish zones on the RSI
After testing the levels above 80 or below 20 on the RSI, we will also see bounces and moves oppositely. Also, the very sight of these patterns will mean a flat is for sale. If the gauge goes back below 80 or if it hits the top of the range, this is a sign to sell. This is a sign to buy when the gauge goes back above 20 and tests the bottom of the range.
Bounce-Off of Levels
If we move into a flat, we can trade jumps off the channel’s edges. In this case, the stop order is slightly above or below the lowest maximum or minimum. For example, if the support level is set at 0.9905, we can open a sell trade with a stop loss above 0.9935 when the price tests this area. If prices continue to increase, they could easily break out of the range and start a trend, so it’s best to stop the trade.
MAs in a Flat Market
Unfortunately, the best way to tell which way a market is going is almost useless in these places. Again, look at the USD/CHF pair as an example. As we can see, after the MAs cross and the price goes back to them, there is no bounce, and the price keeps going in the wrong direction. In a flat, the MAs will cross each other all the time, and most of the time, these places will be lost.
Conclusion
From different points of view, trading in a flat is a good idea. First of all, there are clear edges to the channel. The seller knows where to sell and where to buy at all times. Risks are easy to manage, and a stop loss (SL) is outside the channel. Popular and easy trackers like the MACD and RSI work well. A split gives a clear entry point into the market, and the signs most often work. The bad thing about this market is that fake breaks can happen at the checks of the edges of the flat, which could lead a trader to think that the flat is over. Also, channels aren’t always easy to see on the charts, and people have different ideas about how to find them.
F.A.Q
A market can become flat due to a variety of factors, including decreased trading activity, lack of significant news or economic data, balanced supply and demand, or a temporary equilibrium between buyers and sellers.
Yes, trading opportunities can exist in a flat market. Traders can use strategies that capitalize on the price movement within the established range, such as range trading or mean reversion strategies.
Range trading is a strategy where traders buy near the support level and sell near the resistance level in a flat market. The goal is to profit from price fluctuations within the established range.
Yes, flat markets can lead to breakout scenarios. When prices consolidate in a tight range, it often precedes a significant price movement, either to the upside (breakout above resistance) or downside (breakdown below support), potentially resulting in a new trend.
Yes, indicators like the Average True Range (ATR) or Bollinger Bands can provide insights into market volatility. Low readings on these indicators may indicate a flat market with limited price movement.
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Written By: Allen Matshalaga
Allen is a professional forex trader, blogger, and online enthusiast who spends most of his time testing and reviewing legit ways of making money online and is determined to help others succeed.