Every once in a while, the stock market will go through a period of consolidation. When this happens, it looks like the market is just moving sideways. There’s no major ups or downs, nothing noticeable is happening. Trading volume even goes way down during these times as people prepare for the next move. This doesn’t mean that nothing is happening, though. There is plenty going on, even if it doesn’t look like it to the average investor. The trick is learning how to see it, and then learning how to take advantage of it.
First, the markets are never absolutely quiet. Even when they’re not moving a lot, they are still moving. This is the kind of movement that long term investors hate, but that short term traders can make a lot of money on. This is because the movement isn’t sustained for long enough to create wealth that can be pocketed. The appeal to traders though, particularly day traders, is that when consolidation occurs, the movements are very easy to predict–as long as nothing major changes within the action of most traders. The fundamental indicators need to remain consistent throughout this time, too. You will typically only get a week or so at the most out of a trading strategy like this, but it is a great opportunity to make money when everyone else is sitting still.
Here’s how it works: Every asset follows a specific pattern in how they move on a daily basis. The pattern tends to be one of a wave, or an oscillating pattern. The movement isn’t perfect in its looks, but there are criteria that are almost universal in how it moves with only small deviations here and there. This is the point of technical indicators. They are able to point to the minute details of the waves and give you an approximation of what will happen next. For example, if you are following the EUR/USD, there are numbers and patterns that are universally known to affect this asset more so than others. When a point of resistance or support is reached, because these patterns are acknowledged throughout the trading community, a natural reaction occurs as the majority of traders follow suit and bring about that response.
It should be noted that these numbers and patterns are ever changing. The support level of the EUR/USD pair will be different today than it was a month ago. These are things that are dynamic, and this is why experience is important, as is continuous education and interaction with other traders and experts in the field. This allows you to get different opinions on what these numbers should be and how to apply them. Charting packages are helpful, but there is always room for error. This goes for both misinterpretation by the software and human error, too.
Do not underestimate the importance of human and group psychology upon the markets. Even when Wall Street is at a seeming standstill, millions of people are watching it and waiting, and some are even making small moves during this time. You can be one of these people making the moves. If you can anticipate what those moves are correctly, you can easily profit off of them given the right methods. Some people day trade stocks with huge amounts of money, some trade Forex with lots of leverage, and some grind away with small amount with binary options. All are valid and profitable trading methods. What you use is up to you, but the fact remains that there are profits to be made even when no one else is doing it.