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In this lesson, you’ll learn about the sideways trend, also known as the continuation trend in Wall Street terminology, and understand why this phase presents unique challenges for active investors and traders. This market condition occurs when supply and demand forces are balanced, creating limited opportunities for traditional trend-following approaches.
During a sideways trend, buyers (the bulls) and sellers (the bears) are in balance, resulting in limited price movements and low volatility. The price moves horizontally within a tight range, offering little opportunity for significant price swings. This continuation phase often emerges after a strong trend, leaving both buyers and sellers uncertain about the asset’s future direction. It could signal a potential future trend or reversal, but provides no clear directional bias.
For traders who rely on trend following strategies, the sideways trend creates significant difficulties as it generates numerous false signals leading to potentially unprofitable positions. The lesson demonstrates this through real examples on stocks that moved within defined price ranges—one fluctuating between $2900 and $3500 from July 2020 to March 2021. Volume in these phases tends to decrease or remain flat, though it grows strongly during an up or down breakout period.
You’ll discover that horizontal trends result from price movement through support and resistance levels and typically occur after periods of strong trends that aren’t sustainable long-term. Unfortunately, there are no particularly effective indicators for spotting or providing signals during sideways trend periods. The only ways to make money during these periods is through breakout strategies or by trading between support and resistance levels.
The lesson includes practical chart examples showing how a support and resistance trading strategy can generate profits during sideways periods, with green arrows representing buy signals and red ones representing sell signals. In contrast, a trend following strategy in the same period would have led to losses, highlighting the importance of adapting your approach to market conditions.
Video Chapters
00:00 – Introduction to the sideways trend
00:42 – Understanding market uncertainty and false signals
01:03 – Chart example of horizontal trend phase
01:39 – Amazon stock consolidation example
02:01 – Support and resistance in horizontal trends
02:33 – Profitable strategies for sideways markets
Key Takeaways
The sideways trend occurs when supply and demand are balanced, creating limited price movements and low volatility
Trend following strategies generate numerous false signals during sideways periods, leading to unprofitable positions
Volume tends to decrease or remain flat during sideways trends but grows strongly during breakouts
The most effective approaches during sideways trends are breakout strategies or trading between support and resistance levels
Video Transcription
[00:00:00.05] - Speaker 1 The continuation trend, commonly referred to as the sideways trend in Wall street lingo, can be a challenging phase for active investors and traders.
[00:00:09.28] - Speaker 2 During this period, the forces of supply.
[00:00:12.08] - Speaker 1 And demand represented by buyers, the bulls and sellers. The bears are in balance, resulting in limited price movements and low volatility. The price moves horizontally, maintaining a tight range, offering little opportunity for significant price swings. The price in this phase moves on horizontal levels, leaving no room for strong movements. There is no volatility. The continuation phase often emerges after a trend, leaving both buyers and sellers uncertain.
[00:00:42.27] - Speaker 3 About the asset's future direction.
[00:00:45.09] - Speaker 4 It could be a signal of a.
[00:00:46.19] - Speaker 1 Potential future trend or reversal.
[00:00:49.09] - Speaker 5 For traders who rely on trend following.
[00:00:51.24] - Speaker 1 Strategies, the sideways trend creates difficulties as it generates numerous false signals leading to potentially unprofitable positions.
[00:01:00.20] - Speaker 2 The chart below represents a horizontal trend.
[00:01:03.20] - Speaker 6 Phase on the stock.
[00:01:05.07] - Speaker 2 After a strong bullish period, the stock settles down and for several days or.
[00:01:10.01] - Speaker 1 Weeks it remains in a defined price range, giving no room for strong upward or downward movements. For traders using trend following strategies, this situation offers no earning opportunities.
[00:01:23.11] - Speaker 7 We can see from the graph with.
[00:01:24.28] - Speaker 1 The red circles some false signals of.
[00:01:27.14] - Speaker 2 The possible start of a new trend.
[00:01:30.02] - Speaker 1 Let's do another example on Amazon stock. Amazon grew strongly in 2020, but in this period we are witnessing a strong consolidation.
[00:01:39.16] - Speaker 2 The graph shows how the stock from.
[00:01:41.16] - Speaker 1 July 2020 to March 2021 moves within a channel. It fluctuates between $2900 and $3500.
[00:01:52.18] - Speaker 4 We can see how signals that could.
[00:01:54.11] - Speaker 1 Suggest a beginning of the trend can bring us losses. The market shows uncertainty and there is no real direction.
[00:02:01.17] - Speaker 2 Horizontal trends are the result of price.
[00:02:04.04] - Speaker 1 Movement through support and resistance levels.
[00:02:07.02] - Speaker 2 They occur after periods of a strong.
[00:02:09.02] - Speaker 1 Trend that is not sustainable in the long term.
[00:02:12.16] - Speaker 3 Volume in these phases tends to decrease.
[00:02:14.25] - Speaker 1 Or remain flat as there is a balance between buyers and sellers. However, volume grows strongly during an up.
[00:02:22.12] - Speaker 8 Or down breakout period.
[00:02:24.11] - Speaker 1 Unfortunately, there are no particularly effective indicators for spotting or providing signals during sideways trend periods that a trader can use.
[00:02:33.17] - Speaker 9 The only ways to make money during.
[00:02:35.13] - Speaker 2 These periods is through breakout strategies or.
[00:02:38.13] - Speaker 1 By trading between support and resistance levels.
[00:02:41.27] - Speaker 5 Returning to our example on Amazon, one.
[00:02:44.08] - Speaker 3 Of the strategies that could bring a.
[00:02:45.26] - Speaker 1 Profit in these sideways trend periods is to trade on support and resistance levels. The green arrows represent buy signals and the red ones sell signals. Using a strategy of this type in.
[00:02:58.10] - Speaker 3 This period of time we would have made profits.
[00:03:01.12] - Speaker 1 A trend following strategy instead would have led to losses.
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