The definition of a lateral / sideways drift’
Side market or side drift occurs when the transaction price of the security within a range without forming any distinct trends. The share price fluctuates in a horizontal range or channel, with neither the bulls or bears take control of the price.
An example of a sideways market
Breaking down the ‘sideways market / sideways drift’
Market participants can use a sideways market, anticipating breakouts, either above or below the trading range, or trying to make a profit as the price moves between levels of support and resistance within the sideways drift. Traders that use a strategy needs to ensure that the sideways market is wide enough to set risk-reward ratio at least 2:1 — this means that for every dollar risked, investors make two dollars profit.
Sideways markets you also called volatile or non-trending markets. If the sideways drift is expected to remain for an extended period of time, investors can profit from the sale of call and put options with the approaching date of expiration. The opposite side, the market is in a trending market.
The benefits of trading in sideways market
Clear inputs and outputs: side the market usually has clearly defined levels of support and resistance, which eliminates the uncertainty of where to place the inputs and outputs. For example, a trader may buy a stock when its price support tests and set the take profit at resistance. Stop loss placed slightly below the support level side of the market minimizes the lack of trade.
The risk and control: traders seek less profit when trading in sideways market; thus, each transaction, usually not more than a few days or weeks. This reduces the likelihood of position has a negative impact on the bear market or unexpected events such as terrorist action. Traded in a sideways market allows traders to close all open positions before the announcement of the company, such as earnings reports and re-enter when you return the price to the support.
Restraint of trade in sideways market
Higher Transaction costs: trading sideways market usually presents more trading opportunities than trading in the trend. As the price of the financial instrument moves in a range, traders can always buy on support and sell on resistance. Frequent trade generates a Commission, which is in the trader’s profit. Traders who use a range of strategies have the advantage of letting your profits to work to offset the Commission.
Time consuming: often buying and selling the security to eek out a profit in a sideways market takes a lot of time. Traders have to determine their entry and exit, and place a stop-loss. After entering the market, should be carefully monitored to ensure proper execution. Many traders to automate their trading strategies, to avoid having to sit in front of the monitor all day. (Read more: the pros and cons of automated trading systems.)