A Sideways Trend is a horizontal price movement that occurs when supply and demand forces are almost equal to .
In a sideways trend, price moves within a narrow band , neither rising nor falling.
This usually occurs during a consolidation period, and then the price continues the previous trend (trend continuation) or reverses into a new trend (trend reversal).
A sideways price trend is also commonly referred to as "Horizontal Trend" or "Range-bound ".
Sideways trends can be very frustrating for short-term traders and trend traders as there is no clear directional trend.
Sideways trends are usually the result of price moving between support and resistance .
It may occasionally rise above or below these levels, but it will not be followed by higher highs or lower lows.
It is not uncommon for prices to trend horizontally for long periods of time before continuing a previous trend or starting a new trend.
How to trade sideways trends
Traders focus on identifying horizontal trend channels that contain sideways trends.
Then they can look for confirmation of a breakout or breakdown.
- If the price can break above its upper trendline. Traders can buy on breakout .
- If price is able to break above its lower trendline, traders can sell Breakout .
Traders can also look to trade “Bounce”.
If price bounces off support and resistance levels regularly :
- Buy when price is close to support.
- Sell when price approaches resistance.
The Psychology of Horizontal Trends
When prices fall into a sideways trend, market psychology goes through several basic stages.
Initially, traders expected the price to quickly break out of the newly formed range.
When this fails to happen, sentiment turns bearish as price falls to the lower end of the range.
As price continues to rebound from the top of the range to the bottom. Traders begin to lose interest and eventually withdraw from participation entirely, selling many stock positions.
This is the basis of the bullish accumulation pattern, as institutional traders “accumulate” the supply of disgruntled retail traders.
As the range continues, many smaller traders remain frustrated with the lack of directional movement.
Due to the accumulation of institutional traders, the supply slowly decreases and the price rises back to the upper limit.
When the upper limit is reached, traders become worried.
They have long been accustomed to seeing prices rise to previous price highs, only to eventually pull back and fail to break out of the upper limit of the trading range.
Skepticism is well established at this point, with few believing the market will breach its upper limit.
When price reaches the upper end of the range, participation from even active traders tends to be weaker.
Few traders are interested in buying near the upper limit of the trading range.
Only when the upper limit is decisively breached will traders start to show interest.