What is a Sideways Market?
Sideways markets are simply investment and money markets that are going through a period where there is little to no change in stock prices occurring. Sometimes referred to as a flat market, the sideways market can present an interesting challenge to investors who wish to make some sort of ongoing profit from their investments. The sideways market is not a new phenomenon, but dates back to the earliest years of organized and structured investment markets.
Because the movement of prices on stock is flat during a sideways market, investors have to employ strategies that are very different from approaches that work in a more volatile market situation. One way of dealing with an extended phase of horizontal price movement is to make use of leverage in buying and selling stocks. This is especially true when it comes to dealing with buying stocks on margin.
This application does still carry some risk, if the signals of current market trends within the sideways market are misread. For example, making small moves by buying limited shares on margin can result in earning a modest return even when the market is flat. At the same time, if the situation is not evaluated properly, the loss can easily be twice the initial investment before the flat trend is resolved and some type of upward or downward movement takes place.
For some investors, a sideways market can serve as a respite from trading activity. This is especially true when the investment portfolio already contains stocks and other securities that the investor wishes to hold on to for the long term. When this is the case, the investor simply remains content with whatever small amount of return is taking place and does not attempt to buy or sell in order to acquire additional shares of a given stock, but simply maintains the status quo. At the same time, the savvy investor will be attempting to project the future movement of the market once the period of horizontal movement is complete. By doing so, the investor can plan a strategy that can be implemented once it is clear the market is moving in a certain direction.
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