Sideways Trend
Tue, Apr 15A sideways trend refers to the horizontal movement of prices that occurs when supply and demand are nearly balanced. In this type of trend, prices fluctuate within a narrow range, showing neither upward nor downward movement. This situation often arises during a consolidation phase before the price either resumes its previous trend (trend continuation) or shifts into a new trend (trend reversal).
This horizontal price movement is also referred to as a “horizontal trend” or “range-bound.” Due to the lack of a clear directional trend, sideways trends can be quite frustrating for both short-term and trend traders. Typically, these trends result from prices oscillating between strong support and resistance levels. While prices may occasionally break above or below these levels, they usually do not sustain a higher high or lower low.
It is common for prices to remain in a sideways trend for an extended period before either continuing their previous trend or initiating a new one.
Traders aim to identify a horizontal trend channel that encapsulates the sideways movement. They then look for signs of a breakout or breakdown. If the price breaks through the upper trend line, traders can buy the breakout. Conversely, if the price breaches the lower trend line, traders can sell the breakdown.
Traders may also consider trading the “bounce.” If the price consistently rebounds from support and resistance levels, they can adopt the following strategies: buy when the price approaches a support level and sell when it nears a resistance level.
When prices become trapped in a sideways trend, market psychology undergoes several stages. Initially, traders anticipate a quick breakout from the newly established range. However, when this does not occur, sentiment shifts to bearish as prices drop to the lower boundary of the range.
As prices continue to bounce between the top and bottom of the range, traders gradually lose interest and may exit their positions, leading to a bullish accumulation pattern as institutional traders begin to “accumulate” the supply from frustrated retail traders.
Throughout this range, many smaller traders remain discontented with the lack of directional movement. As supply diminishes due to institutional accumulation, prices tend to rise back toward the upper range. When the upper range is approached, traders become cautious. They have been conditioned to see prices rally to previous highs, only to retreat and fail to break through the upper trading range boundary.
At this stage, skepticism is deeply rooted, and few believe that the market will escape the confines of its upper limit. When prices reach the upper band of the range, participation among active traders often weakens. Few are inclined to buy near the ceiling of the trading range. It is only after a decisive breakout above this ceiling that traders begin to show renewed interest.
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