Sideways Market

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Forex Trading Explained.
DrForex's top selling forex book Bird Watching in Lion Country - Forex Trading Explained in e-format.

Author: Al Thomas

Article source: http://myinvestforum.com/. Used with author's permission.

Last year you could have used a dart, thrown it at a stock page in the newspaper and bought that stock. By the end of the year you probably would have had a nice profit. This year you can retrieve your dart, throw it again, and there is about a 90% chance that any stock you hit will be down from its previous highs. What's going on?

Even with my more than 30 years experience of trading markets there is one simple answer - more sellers than buyers. I'm not being facetious. In all those years I can't recall a market that went up this quickly, but I have seen them come down even faster. Remember the 20% loss of the DOW in 1987? In one day! Many of you don't. This break is a good lesson for those who failed to put trailing stop loss orders on all their stocks.

Your broker certainly did not recommend a stop. His company discourages that sort of thing. Why I will never be able to logically understand, as it would benefit both the customer and the brokerage house. How? If you were sold out at a much higher price than that dog you have in your account now you would have more capital to invest when the market turns up again. You are a happy camper and the broker makes more commission because you have more money in your account to invest.

Check out the stocks or mutual funds you now have in your portfolio. See where you would have been stopped out if you had had approximately a 10% trailing stop loss. I can almost guarantee you would have more money in your account today than you do right now.

Let's try to use some common sense to figure out why this market is going nowhere at this time. Think of all the people who are sitting on stocks that are selling for less than they paid for them. A lot, huh? I can bet many of them are saying to themselves, "I'm going to sell XYZ as soon as it goes up to where I can get out even". This effectively puts a cap on any strong rally.

What are the pros doing here? Each time the market falls near its former lows they are in there buying from those people who have become discouraged and no longer want to wait for the market to head up. This is support.

We have a group willing to sell their shares when there is a rally and another group willing to purchase shares when the market starts down which gives us the reasons for this sideways market.

It is very difficult to make money in this type of situation so you must be very choosy with your purchases. Fundamentals don't apply well here. Technicians can make money provided they will sell with small profits. For those interested in the long term they must be patient enough to wait for the next leg up.

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