A sideways market occurs when the horizontal price movement that occurs when the supply and demand are nearly equal over a period of time.
This usually happens during a period of consolidation before the price resume its prior trend or reverses into a new trend.
Understanding a sideways market
A sideways market is the result of price trading between strong levels of horizontal support and resistance.
It is not uncommon to see a horizontal trend dominate the price action for a prolonged period before starting a new trend higher or lower.
These periods of consolidation are usually needed after aggressive rallies or a prolonged slump in prices.
It is near impossible for large price movements to sustain themselves over the long term as markets do not move one directional.
Example of a sideways market
The chart below depicts a sideways trend for a period of time after price has slumped.
We can see that there was no clear breakout to the upside or downside of the horizontal support or resistance.
Price traded between two strong horizontal levels, rejected support and resistance multiple times and continued to trade in a narrow range.
Profiting from a sideways market
There are a few ways you can make money from a sideways market. Here are three ways you can do so:
- Staking: Do you have idle assets sitting around? Why not stake and earn interest on them? The rates are better than what traditional banks offer. You can choose to stake them and generate a nice passive income. Furthermore, you’re helping to make the network more secure.
(Also Read: What Are The Differences Between Staking And Farming?)
- Lending: There are plenty of lending protocols on different chains. Lending usually offers a lower interest rate than staking but the advantage is that it does not require you to lock up your funds as opposed to staking on some chains.
- Trading: One can profit from trading a ranging market by shorting resistance and longing support. Sounds easy? Well, not really. Most people get wrecked because of poor risk management and high leverage. Research have shown that around 90% of intraday traders lose money. Trade only if you have experience and know what you are doing.
Advantages and disadvantages of a sideways market
A ranging market can be a profitable market if you know how to come out on top. If you truly believe in the token that you are hodling and have done your research, you should not be worried if it isn’t mooning yet. This is the best time to accumulate, stake and turn off the charts.
However, If you are impatient and have heard about many making millions in crypto, you are probably jumping into this space because you think it is easy and hope to be like one of them.
This is when a ranging market can keep you on the edge of your seat and make you impatient. Once your emotions start to take over, a common mistake newbies make is to panic sell only to buy back in at a higher price.
There are plenty of ways to make money in the financial markets; be it a bull, bear or sideways market. Making money in a bear market is more advanced because it requires you to have prior experience.
On the other hand, profiting from a bull market is easy because almost anything you decide to purchase will most likely be profitable.
Making money in a sideways market is possible if you manage your risks well and not let your emotions get the better of you.
[Editor’s Note: This article does not represent financial advice. Please do your own research before investing.]
Featured Image Credit: Financial Times / Chain Debrief