A flat market is a market condition when the price of an asset moves in a narrow range without showing a clear uptrend or downtrend. This market behavior is one of the most common market states. Although it may seem less promising, trading a flat strategy can be more profitable than trading on trends.
5 reasons why flat markets occur
Like uptrends and downtrends, sideways movements have their technical and fundamental causes. Understanding these causes allows traders to improve market analysis and choose an appropriate trading strategy.
Lack of important market drivers
Very often there are no global news or events in the market that increase the price volatility of assets. Then the price usually moves in a narrow price range. For this reason, traders wait for information to open a position.
For example, companies publish reports for the past quarter in the stock market. A bad or good report can trigger a Gap Up or Gap Down. This is very dangerous for short-term traders, as gaps can trigger a margin call. Therefore, on the eve of the report there is a decrease in trading activity and flat market is formed.
Equality of demand and supply
A sideways trend can occur when there is a balance between buyers and sellers in the market. Neither party has enough motivation or capital to turn the situation in its favor, which leads to price consolidation in a certain range.
During this period, there is no major participant in the market capable of “accelerating” the price in one direction or another.
Taking a breather after a strong movement
A sideways trend often acts as a stage of “resting” the market after a significant rise or fall. When the price of an asset passes a strong movement, traders and investors fix profits, and the market stabilizes. At this stage, market participants analyze the situation, waiting for a new direction. At this time, prices are at low volatility levels.
For example, if the price of BTC breaks through an important resistance level and rises sharply, a consolidation period may start after that. At this time, the price moves in a tight range, as traders “digest” the changes, and there are no new signals to move up or down.
Position formation by large players
Hedge funds and other large participants often use consolidation to build up a huge position with an adequate average purchase price. Since a single purchase or sale triggers significant price changes, large market participants allocate capital in several runs.
What technical indicators will help to determine the formation of such positions and predict the subsequent price movement? Standard indicators — trading volumes are higher than average, they indicate the appearance of such a participant.
Periods of low liquidity
When liquidity in the market decreases, the price may get stuck in a tight range. This is due to the fact that trading volumes are insufficient to form a significant movement. This phenomenon is especially noticeable in low-liquidity assets or during periods when the activity of traders and investors drops.
For example, in cryptocurrency trading, flat can be observed on weekends, and in the stock market on the eve of holidays or in summer.
Distinguishing a flat market from other market conditions
Unlike trend price movements, a flat is characterized by the absence of a pronounced trend. A flat market differs significantly from trending markets both in price movements and in the behavior of participants, approaches to trading, and risk levels. It is important to understand these differences to adapt your trading strategies and minimize risks. Flat trading requires a specific approach based on the use of oscillators and trading within a narrow price range, while trend-following strategies require following the direction of price movement. Market participants are required to use strategy variations for different market conditions. Trend strategies should not be traded during consolidation.
The main differences between a sideways movement and a trend movement:
- The price moves in a narrow or wider price range, but there is no pronounced upward or downward direction.
- Volatility during consolidation is significantly lower, so the amplitude of price movements is much smaller.
- Trading volumes are noticeably lower. Stops are often knocked out during trend movements, which gives “fuel” for a sharp movement in one of the sides.
- Technical indicators, in particular oscillators, give more accurate divergence signals. During trend movements RSI and stochastic are too “hurried”.
This trading knowledge should be understood and used by every experienced trader and investor.
How do you identify a sideways trend?
The best solution is graphical analysis. It is enough to draw support and resistance levels on the chart. The correct levels should intersect at least three points and form a horizontal trading channel. Thanks to this method range trading will become much easier. Detecting the boundaries of a sideways trend is especially important for short-term trading. Because support and resistance levels are often used to open positions with a good risk-to-reward ratio of at least 1:5.

An example of a sideways trend. Note that support and resistance levels are crossed 3 or more times
Flat trading strategies
Many traders rely only on support and resistance levels before opening a position. How to trade in this case? There are two ways.
- Trading from levels
If the price regularly bounces off support and resistance levels, traders can buy the asset when the price approaches the support levels. Then sell when the price approaches resistance levels. Stop loss levels should be set just above or below these levels in case of a breakout. You can also open short positions, but the price should be near resistance levels. This strategy should be used with maximum concentration. Open a position only when the asset shows that the price will stay within the horizontal channel.

Example of a short position from a resistance level
It is important to be as cautious as possible and be aware of bull and bear traps. In a false breakout, the market simply collects the stops of short-sighted traders.
This strategy is perfect for any short-term trader or swing trader. Its obvious advantage is its simplicity and excellent risk-to-reward ratio. Since the stop-loss order is not wide.
- Trading on level breakout
Ideally, you buy from a support level in anticipation of a complete breakout of the resistance level. This trade is ideal for medium-term traders. Short stops will reduce risk and allow you to take profits in time.
You can also open a position at the moment of consolidation breakout. This will be confirmed by an increase in volume and the closing of a long candle outside the sideways channel.

Example of position opening after resistance level breakthrough
Conclusion
A sideways trend is as important a part of the market as uptrends or downtrends. Being able to identify flatness and adapt your strategy to its conditions can be an important skill for a trader. During consolidation, there are excellent opportunities to trade from levels. It is important to be mindful of the risks and use elements of technical analysis for proper market prediction to minimize losses and maximize profits.
Download the App