Life is full of ups and downs, but have you ever asked yourself “What happens if my life isn’t going up or down?” Well, that we don’t know. But what we do know is that, in crypto trading, there is a similar phenomenon called “Sideways Markets” that describes assets that are not going one way or the other.
Believe it or not, this sort of market offers a valuable opportunity for investors to try and turn a profit. More common among day traders, the sideways markets are also a great learning experience as it allows us to observe the market behavior, and what sort of resistances and support zones a given asset is respecting.
In this guide, we’ll cover everything about this common type of market, and also how sideways markets impact traders. So if you’re looking to learn more about it, and potentially profit even amidst low-volume periods, just sit tight and relax!
What Is A Sideways Market?
A sideways market—also called sideways drift, or ranging market— occurs when the price of a cryptocurrency moves between strong levels of support and resistance for a long period without trending one way or another.
This type of market condition is known for being less volatile, and while it offers interesting chances to trade—it is also considered stagnant to some extent and can make it difficult for traders to navigate through it.
Neither the bulls nor the bears have much influence when the price of an asset moves within a horizontal range without breaking that pattern. It also occurs when the supply and demand are almost equal for an extended period.
Such market conditions can usually be seen during a period of consolidation before the price of an asset either continues a previous trend or starts moving into a new one. Periods of consolidation are sometimes necessary to occur during prolonged trends as it is almost impossible for the major price moves to remain maintained over a long period.
Sideways Markets Vs Trending Markets
When the market is trending, it means a given asset is going either up or down. When Bitcoin gained substantial momentum in late 2024 to break above the $100,000 mark, the market was trending upwards. At the same time, when Bitcoin dipped to below $40,000 in 2022 following its remarkable performance in the previous year, the crypto market was trending downwards.
The terms “bullish” and “bearish” also refer to market trends. A bull attacks upwards with its horns, an analogy for an upward market. Meanwhile, a bear will typically attack downwards with its paw, referring to markets on the way down.
Meanwhile, a sideways market means that it is neither bullish nor bearish. Unfortunately, we do not have a cool animal analogy for a sideways market. Maybe a fish? Fishes are always going side to side, right? But yeah, a “fishy market” doesn’t sound as cool so no deal on that one.
Sideways Market Patterns Explained
To identify a sideways market we must look for “channel” formation in the charts. A channel happens when the price movement of an asset is limited to a specific range generally between relevant key resistance and support zones.
As an example, here is a channel formation for XRP in a 1-hour chart from November 11-17, 2024.
As you can see, XRP bounced up and down these zones while showing minimal breakthrough potential. You can also observe that the volume went considerably lower during this period. It was only on November 18 that buyers picked up enough momentum to continue the asset’s forward momentum.
Sideways Market Trading Strategies
A common misconception among new traders is that a sideways market offers no real opportunity to trade. After all, how can someone make a profit in a market that is trading sideways?
Well, the first thing to note is that despite the lack of volatility an asset is never truly stagnant. Cryptocurrencies are always trading within a range of value, typically limited by support and resistance zones. Even dollar-pegged stablecoins like USDT don’t trade at a constant range of $1.00, but rather a very small range that can go slightly up and down the dollar level as tether tweaks its price to maintain the peg.
There in itself offers the opportunity to trade within the price range of an asset. To do that, you have to analyze the currency condition of a price that is neither bullish nor bearish—and then define what are the maximum and minimum price ranges within that market condition.
How To Trade In Sideways Markets
For instance, from August 4th to November 6th Ethereum traded sideways. The channel ETH found itself in for 3 months respected a key support zone in the price’s history, around the $2,300 level.
During that time, Ether ranged between $2,300 and $$2,790, offering investors the opportunity to capitalize and potentially earn 15% profits upwards or downwards, buying or shorting ETH. This type of trading also known as channel trading can be valuable because it offers investors a chance to profit even amidst a stagnant market.
The range in which an asset trades typically varies depending on what timeframe you’re looking at it. For instance, the example above is seen in a daily chart. Typically, the larger timeframes offer more reliable “scopes”, while shorter timeframes like the 10-minute chart offer more entry opportunities, but also more risk.
Identifying Sideways Markets In Crypto
The hardest part of trading in a sideways market is understanding market consolidation phases. After all, the last thing you want is to put a buy option on an asset about to hit a key resistance level, only for it to continue going down, and with it your funds.
There are generally two approaches to trading in a sideways market. The first one is more risk-averse as you wait for true consolidation of a channel before buying or shorting. This of course means that you missed at least a couple of entries that you could have profited off. And also, there is the chance of entering late and potentially experiencing a breakthrough that could go your way, or not.
The other riskier option is analyzing the market conditions, and jumping on the opportunity as soon as you see it.
In general, there are a couple of signs you’d want to see to analyze the consolidation period of an asset. For starters, you have to analyze the history of the currency to identify relevant key zones that could serve as either support or resistance.
Also, keep a close eye on the volume. In general, less volume means that the likelihood of a cryptocurrency entering a sideways pattern is high. As always, always track the news surrounding that asset in question because if you are trading at times when there’s likely breaking news coming, you’ll more than likely see a breakthrough rather than a continuing sideways market.
Best Indicators For Sideways Markets
One of the most used technical indicators for channel trading is known as “Bollinger Bands”. Now if you don’t know anything about the Bollinger Bands you might go “What is this Bollinger Bands, was it invented by some guy named John Bollinger?”
Well… yes. John Bollinger invented this technical indicator in the 1980s and it shows a very detailed outlook on an asset’s behaviour.
The Bollinger bands can be used for several different types of markets and have proven a useful tool even for predicting potential breakthroughs. In this context, this indicator is also great for trading within a horizontal zone as it shows you the range of what an asset may go while sideways trading.
The Bolinger Bands consists of three lines:
- Middle Line: A simple moving average (generally 20-day SMA) that helps you track the currency price movement.
- Upper Line: The upper line forms a band, and is calculated from a deviation from the middle line and helps you predict how far the price can deviate upwards at an exact time.
- Lower Line: Same thing as the upper line, but a different deviation to calculate how low an asset may go.
On top of the Bollinger Bands, there are also several indicators that help you analyze if a price is overbought or oversold within a sideways market. Notable examples are the RSI, Stochastic Oscillator, and the MACD.
Profit Strategies For Ranging Markets
Taking as an example the image regarding the XRP channel earlier in this article, here is what the Bollinger Bands look like in a chart:
As you may see, XRP mostly respected the Bollinger Band limits, allowing investors to potentially pick up to 5% profits in each call—with a decent win/loss ratio. This type of strategy is the bread and butter of a day trader, but far from the only one.
Investors may use tools like the Relative Strength Index (RSI) to determine if the price is reaching “overbought” status (while also keeping an eye on volume), or even not use any indicators at all and use resistance and support lines to determine a channel.
Conclusion
To sum it up, even though sideways markets can be considered stagnant—they are far from boring. Even when there is not much going on in the charts or the news, investors can still develop strategies to trade and potentially profit off of their calls.
This type of market condition not only allows for potential profits but also serves as a valuable learning experience for understanding market behavior and dynamics. If you liked this article and would like to learn more about trading, consider checking out our “learn” section at Bitcoinsensus. And also—if you’re considering taking the next step in your trading journey, check out our exclusive Legends Community here.
