Side Hustle: 4 Essential Questions to Ask for Earning Money
September 29, 2021
The Sideways Phase is one of the most difficult to manage for those who practice online trading, regardless of the assets. Certainly, some markets are more chaotic than others and produce sideways phases more often, but traders are more or less all in the same boat.
Managing the sideways phase involves the set of skills that each trader has, but it is undeniable that there are some best practices that can help minimize any damage and maximize any profits.
Some of these best practices are developed in a preliminary phase, i.e., the one that precedes the actual trader's elaboration. They are the result of some questions that the trader must ask themselves before thinking about entering the market.
In the following article, we report these questions, explaining their implications and why - even immediately - they prove useful.
What Is the Sideways Phase and the Risks It Entails
Before moving on to the questions, it is good to give an overview of the sideways phase and provide a definition of it that is as exhaustive as possible. In essence, the sideways phase is that moment in the market when the price seems unable to take a clear and stable direction. The uptrend sees the price rise, the downtrend sees the price fall, while the sideways phase is characterized by a price that moves within a range but does not assume an unequivocal trend.
Often the sideways phase arises from a climate of waiting, during which traders await the occurrence of an event that, based on the outcome, can push prices towards a downward or upward trend. Sideways phases are often interlocutory and therefore caused by purely technical elements.
The sideways phase gives rise to some risks for traders. Firstly, because it may not be so simple to recognize it, while on the other hand, it can happen to mistake the beginning of a trend or a brief interlocutory phase for the beginning of a sideways phase.
Secondly, because during the sideways phase, it is complicated to carry out the usual analysis work. In fact, it is often dominated by uncertainty, and oscillations can degenerate into a real condition of volatility.
#1 Can a Trading Range Be Seen?
Actually, all the questions are aimed at clarifying one aspect, namely to choose whether to enter the market or let it go. It is absolutely not said that a trader should invest always and in any case. On the contrary, it can often be deleterious. Here, a sideways phase that does not express a sufficiently wide trading range could justify a (often short) suspension of investment activities.
If the trading range is narrow, or very tight, the oscillations are too small to cause surpluses worthy of the name.
Identifying the trading range is not very complex. Normally, it is sufficient to take the period minimums and maximums as a reference. Incidentally, the limits of the trading range can act as support and resistance, thus representing an important element for analysis purposes.
How wide should the trading range be? It is not possible to provide a univocal answer; it depends on the way you trade. Normally, the faster the trading and aimed at exploiting small oscillations, the narrower the trading can be.
#2 The Market Is Unstable
Regardless of the presence of the trading range, the trader should verify the degree of instability of a sideways phase. Of course, by definition, the price, moving within the trading range, produces a bit of volatility. However, when this is high, it can give rise to a "dangerous context" for the investor, and make the risk-benefit ratio collapse.
In particular, it is useful to look at the number of oscillations and their amplitude. If these two parameters express high values, then you should consider the idea of waiting for better times or exiting the market.
Incidentally, a bit of "movement" is always good, since it is only with price changes that you can earn, and the most impressive speculations are born precisely from abundant oscillations. When these are exaggerated, however, the trader is unable to practice a sufficiently precise analysis and sees his chances of defeat increase.
Among other things, it is precisely during the most unstable phases that the indicators most frequently release false signals, which can be considered the real plague of those who practice technical analysis.
#3 Can False Breakouts Be Seen?
False breakouts are typical of many sideways phases. Incidentally, we speak of false breakouts of support and resistance levels when the price actually exceeds these levels, but it does so for a very short period of time and then retraces its steps.
False breakouts occur during sideways phases precisely because the price fails to go beyond the range and establish a proper trend.
If the sideways phase produces false breakouts quite frequently, then it is possible to consider entering the market in the opposite direction to the false breakout itself. For example, the price goes down, breaks through a support but then rises again. In that case, the trader who invested in the price rise (despite the support seeming about to break) will have generated a gain.
#4 Are You Able to Mentally Manage a Sideways Phase?
It is the most painful question to ask yourself but also the most important. The sideways phase, in fact, is not for all "stomachs". That is, some particularly emotional traders might suffer from this "strange" market moment. After all, we have already said it, the probabilities that the scenario becomes more and more unpredictable are quite high.
Some might be under a lot of pressure, unable to make decisions in a short time. They might see their lucidity compromised, with important and easily intuitable consequences on the effectiveness of the trading action.
Therefore, if you belong to the category, recognize this limit and consider the idea of letting it go, for now. In short, think about the opportunity to suspend the trading activity until the market has expressed a clear and potentially stable trend.
