You probably know that 80% of the time the market is flat. During this time, the instruments are trading in a narrow range from one border of the channel to another, i.e. the price is neither rising nor declining. Traders are still debating whether it is worth trading when the market is flat. Let’s figure out if the game is worth the candle and what risks you may face when dealing with a flat market.
What is flat in the securities market?
The flat is a state of the market when the price shows little to no movement for a long period of time, and the boundaries of the price corridor can be clearly distinguished. During the flat, the price often comes close to either of the border, but cannot break outside of a set range. Market activity at this time is minimal. Flat is very often observed during the night session. Once the border of such a sideways range is broken, it’s considered as a signal that the flat is over and a new trend starts to develop.
How to make money during a flat
One of the main disadvantages of a flat market is that it is difficult to predict its duration. Market experts have different opinions on whether to trade during a flat. Many traders think that it’s better not to enter the market when the activity is low and stay away from trading. On the other hand, there are also supporters of trading on small volumes.
Trading in a flat can be a good option for those traders who prefer performing frequent short-term small-volume trades, or in other words, use the scalping trading strategy. Also, flat is great for trading from significant levels. The flat is an ideal environment for trading robots based on the Martingale strategy.
You can earn money during a flat before some important news releases. Having calculated the direction of the market after the news is published, you can catch the momentum from the very beginning.
But, despite the fact that everything looks pretty easy, trading during a flat requires compliance with certain rules.
Here are some basic trading rules that need to be observed in a flat market:
- Do not trade on small timeframes, unless you are a scalper. Select your timeframe starting from the 4H chart, if you want more signals, then don’t go below 1H;
- Do not consider the levels that were formed before the beginning of the session or after its close as the true support (resistance) levels. They are often temporary;
- It is extremely important to follow the rules of money management and not overestimate the risks;
- Use indicators to filter the “market noise”.
The last point is quite important. Once the market chooses its direction, the price often escapes the consolidation zone quite rapidly, with large volumes. Using technical analysis will allow you to accurately plot your targets on the chart.
The flat is an integral part of most technical analysis patterns. For example, flat can be found in reversal patterns like head and shoulders or double top. Sideways trading, when the price cannot break the recent high or low, indicates the end of the trend.
Any oscillator is suitable for trading during a flat. Oscillators greatly simplify the work with a sideways trend. Most traders like to use either Stochastic or RSI. When the indicator shows that the asset is in the overbought zone, and the price is at the upper border of the sideways range, it is a signal to sell. And vice versa. When the price is in the oversold territory, we buy from the lower border. We recommend setting Stop-loss and Take-profit levels slightly beyond the borders. The so-called seesaw is often observed in the market. This is when the volatility increases, but the price itself remains within the range. Asset quotes go up and down, often breaking through the boundaries, and even leaving the range for a short time.
The flat can be a pretty dangerous time. Nevertheless, certain traders prefer to trade during such periods. The ability to recognize the structure of the correction and select the right approach will allow you to keep trading even in the absence of a pronounced trend.