What Is a Sideways Market?

The term "sideways market" commonly refers to a particular state within the stock market, but the term isn't limited to stocks. A sideways market can create headaches for traders because it has the unique quality of being both stable and unpredictable at the same time. For the savvy investor, though, even a sideways market can yield profits.

  1. General Definition

    • A sideways market can occur for any market investment, including stocks, bonds, commodities or currencies. A sideways market shows no distinguishable upward or downward trend. Instead, it remains relatively stable or slopes upward and downward in fairly even intervals, without remaining consistently in one direction. For example, if the Dow Jones undergoes a period of repeated rising and falling within a narrow price range, this can be referred to as a sideways market.

    Risk

    • A sideways market can make it more difficult to predict where a particular investment will go next. Because the market shows no reliable, prolonged signs of rising or declining, investors are at a disadvantage when trying to make educated guesses. Although all trading poses risks, investing during a sideways market can present an even more serious gamble.

    Impact

    • A sideways market can create another serious problem for investors: You can't see a profit if your stocks or other investments aren't rising in value. Although a sideways market may be preferable to a bear market, in which stocks persistently decline, it doesn't provide much relief for the investor hoping to make money. If your stocks undergo a roller-coaster ride of rising and falling over a long period, you must contend not only with the lack of profit but with the severe impact this can have on your stress levels, which can affect your risk tolerance.

    Considerations

    • If you want to make money in a sideways market, the key is to find investments that can perform in good times and bad. In any market, you can find some investments that do well, some that do poorly and many that just ride the tide of the overall market. Look for stocks or commodities that traditionally do well when others flounder or fail.

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