This type of sideways action reflects a period of equilibrium in the price level where the forces of supply and demand are in a state of relative balance. (If you’ll recall, Dow Theory refers to this type of pattern as a line.)
Although we’ve defined a flat market as having a sideways trend, it is more commonly referred to as being trendless.
Most technical tools and systems are trend-following in nature, which means that they are primarily designed for markets that are moving up or down. They usually work very poorly, or not at all, when markets enter these lateral or “trendless” phases.
It is during these periods of sideways market movement that technical traders experience their greatest frustration, and systems traders their greatest equity losses.
A trend-following system, by its very definition, needs a trend in order to do its stuff. The failure here lies not with the system. Rather, the failure lies with the trader who is attempting to apply a system designed for trending markets into a nontrending market environment.
- market trends (and, occasionally, history)
- emerging technologies and deep tech
- startups and venture capital
- corporate strategy and business dynamics
- product development and marketing
- finance and (mainly behavioral) economics
- cognitive psychology and neuroscience
- the future of work and career
I occasionally add a personal note to them.
The whole collection is available here.