Your luck
in Forex lasts only until flat comes. A novice trader can guess the market
sentiment over and over again and be quite successful by
opening and closing trades during a bullish or bearish trend. However, the
situation may suddenly change: quotes stop their purposeful movement and
uncertainty will set in. At such periods not only beginners’ plans but also those
of experienced market players go to waste since most strategies simply stop
working.
Flat in
Forex is a so-called neutral trend, which implies small price fluctuations
within a certain range over an extended period. Most often the market is flat when
there is political uncertainty.
A neutral trend is
also called a sideways trend, contrasting it with an uptrend and downtrend.
A flat market
presents a real threat to many Forex beginners. The truth of the matter is that
due to the peculiarities of price movement you will receive dozens of false
signals. This is because the price repeatedly hit the virtual boundaries,
provoking the trader to make a trade.
The most
dangerous aspect of a flat market is unpredictability, but experienced traders do
know a few secrets, which allows them to predict the occurrence of a sideways
trend in time.
The chart shows a
neutral trend in a traditional way: horizontal support and resistance lines.
Key
prerequisites to the market condition:
1. Volatility. As mentioned above, flat is a state of total
uncertainty that indicates the position of most Forex players. Accordingly,
before the formation of a sideways trend, there is a decrease in both interest
and volatility. The price will cover a meager distance within the selected
period.
2. A fading trend. Even the strongest
trend sooner or later comes to an end due to the excessive greed of traders or
changes in economic statistics. When a trend weakens, a flat market is often
formed. It does not last very long, but this fact should be taken into account
to avoid opening losing trades.
3. Neutral fundamental data or lack of
news. Most major participants in the foreign exchange market focus on
fundamental analysis. In such a case, no news is a sure indicator of flat
formation.
The main precondition
for the emergence of a neutral trend is a consistent arrangement of highs and
lows at about the same level.
If you follow
a trend strategy and the market has become flat, it is better not to try your
luck and just temporarily stop trading since prices will move within a small
range, and respectively, the profit made from their difference will be scanty. However,
those who prefer channel trading strategies, on the contrary, love to trade
flat since their behavioral strategies are optimal under such conditions.
Trading a
neutral trend in Forex involves:
· buying
an asset when reaching the support line;
· selling
an asset when reaching the resistance line.
A breakout
of support or resistance areas may indicate the beginning of a new trend, so
even in a flat market, you should not forget about pending orders.
A buy stop is set at
the breaking of a neutral trend’s resistance, while a sell stop is set at the breaking
of the support level.
If you give
preference to technical indicators, choose oscillators whose readings range
from zero to one hundred. For example, the Stochastic and MFCD indicators will
help to determine the highs and lows of a sideways trend, as well as the points
where the flat is likely to end.
Bollinger
bands are especially efficient. The tool is represented by three lines on the
chart. The two outermost are the boundaries, and the third is the moving
average. Trading a sideways trend with this indicator is simple: when a candle
on the chart is closed outside the channel, we open a position in the opposite
direction.
To trade
flat or not is a purely personal matter for each trader since the opinions of
experts on this one are very contradictory. Flat market movements can very
slowly but quite noticeably reduce the profit accumulated in trend areas. If
you decide not to trade during a sideways trend, all that remains is to wait
for a resistance or support breakout, properly filtering out false signals.
A flat market is the
period in Forex when bearish and bullish trends are of about equal strength, so
it is impossible to determine the trend.
If you take
into account some considerations and follow the chosen behavioral strategy
based on readings from the oscillators, trading flat can be quite successful. Nowadays
there are many similar channel indicators that give quite reliable signals. You
can pre-test them on a demo account so as not to risk your real capital.
If you are
not sure that you can cope with false indicator signals and do not even want to
waste time on a flat market, we recommend that you pay attention to algorithmic
trading. It involves the use of special robots that will automatically monitor
the market 24/7 and open only potentially profitable trades, gradually
increasing the account holder's capital. Automatic trading advisors are emotionless
and never get tired, which means they will make lightning-fast and objective
decisions, protecting the trader from reckless actions.