Sideways vs Trending markets on eToro

As a trader, it’s crucial to understand whether the market is trending or moving sideways. In this article, we’ll explore the differences between the two, the indicators to spot them, and the strategies to employ for each scenario. Let’s dive in!

💡 Sideways Markets: A Brief Overview

🔍 Identifying Sideways Markets

In a sideways market, the price of an asset moves within a stable range, forming no clear trends. It oscillates horizontally, between support and resistance levels. This can happen when the supply and demand for an asset are almost equal, resulting in a period of consolidation or uncertainty.

📊 Technical Indicators for Sideways Markets

You hopefully realized that there is no clear upward or downward trend in the price of an asset in a sideways market and that it oscillates within a certain range; something as simple as the support and resistance levels would be indicative of the range the price is bound by. An average directional index (ADX) might help confirming the conclusion that the market is trading sideways, where values of below 25 in the index indicating that there is no clear trend present.

Which indicators could you use while trading in a sideways market? A trader might consider indicators that acknowledge the fact that there is an upper and lower levels of the range but also spot minor variations in volatility that happen meanwhile, such as the Bollinger Bands or the Commodity Channel Index (CCI).

Below is an example of how CCI indicator can be used while trading in a sideways market.

🌟 Trading Strategies for Sideways Markets

Traders can take advantage of the clear support and resistance levels in a sideways market to identify entry and exit points. Buying near support levels and selling near resistance levels can yield small profits over multiple trades. Breakout trading is another option, where traders aim to predict when the price will break through the established range.

🚀 Trending Markets: What You Need to Know

🔍 Recognizing Trending Markets

A trending market is the opposite of a sideways market, with the price of an asset consistently closing at a specific price trend. This can be either an upward or downward direction.

📊 Technical Indicators for Trending Markets

Indicators such as the Average Directional Index (ADX), Moving Averages, or Moving Average Convergence Divergence (MACD) can help identify trending markets. Higher ADX values indicate a stronger trend, while moving averages and MACD visualize the direction and strength of a price trend.

🌟 Trading Strategies for Trending Markets

Various trading strategies can be applied in trending markets, such as Bull and Bear flags, triangular patterns, or head and shoulders strategies. Contrarian strategies, trading against the market, can also be employed, but require sufficient knowledge, skill, and practice. Utilizing stop-loss or take-profit orders can help manage risks in trending markets.

⚖️ Pros and Cons of Sideways and Trending Markets

👍 Advantages

• Sideways markets offer clear support and resistance levels, making it easier to identify entry and exit points.
• Trending markets provide opportunities for larger profits as price trends continue in a specific direction.

👎 Disadvantages

• Sideways markets may yield smaller profits as the price range is limited.
• Trending markets can reverse suddenly, leading to potential losses if traders fail to recognize the change in trend.

🕵️‍♂️ Navigating Potential Dangers

Identifying whether a market is sideways or trending can be challenging, especially when considering different time intervals. An asset may appear to be trending on a daily chart but moving sideways on a monthly chart, or vice versa. Consistency in identifying new high and low levels is crucial, as well as being open to reconsidering your strategy when needed.

If you consider a wider time frame of several month, it is possible to infer an upward trend in this asset. It truly depends on the time period you are considering in your trading strategy.

eToro provides a useful way to consider asset’s daily and weekly range by providing the appropriate data under the ‘Stats’ section for each asset.

Another difficulty comes from the fact that different traders identify highs and lows in different ways. The best solution to this problem is being consistent in your own methods of identifying new high and low levels, but also being open to the possibility of reconsidering your strategy when needed. Sometimes markets can be hard to categorize into anything other than being volatile, with many significant but also temporary price movements and that may bring additional risk into your trading.

In conclusion, understanding the differences between sideways and trending markets is essential for successful trading on eToro. By using appropriate technical indicators and applying the right strategies, you can navigate the financial markets with confidence. Good luck and happy trading! 💰

---

Support us by using the eToro sign-up form down below.⬇️

Plus you will get a Free demo account! Thank you!

GENERAL RISK WARNING

• ▸eToro is a multi-asset platform that offers: Stocks, Crypto assets, and CFDs.
• ▸CFDs are complicated and can make you lose money quickly because of leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. Think about if you understand how CFDs work and if you can afford to take the risk of losing your money.
• ▸Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
• ▸Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
• ▸Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
• ▸eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity-specific information about eToro.

Be warned!

---

Author & Expert Trader - Financial Analyst :

My name is Bart Bregman and I am a full-time professional trader with nine years of experience. I specialize in shorter-term trading using technical analysis, and I have extensive experience with Stocks, CFDs, Options, and Crypto trading. I believe that there is no such thing as a bad trade. I'm currently traveling the world as a digital nomad trader. You can follow my journey on Instagram at https://www.instagram.com/bart_bregman/