There are two types of trends in the stock market – uptrend and downtrend. But what if a stock is neither going up nor down? That’s called ‘Sideways’ movement.
It is also called as ‘Range bound’
Check out the chart below:
The above chart of Reliance Industries is interesting.
What do you think Reliance was doing for nearly 10 years? It was neither in an uptrend or downtrend. The stock was moving sideways.
From 2008 to 2017, the Mukesh Ambani company gave little or no returns to investors. Those who invested at the peak of the bull market in 2008 were actually in losses – even after being invested in one of India’s top companies for nearly 10 years.
But the launch of Reliance Jio proved to be a trigger. The stock has given excellent returns since 2017 – which was the year it began its uptrend.
As you can clearly see from the image above, sideways movement is when the stock moves in a range.
When a stock is in sideways trend, both long term investors as well as traders should avoid taking positions.
Some traders who work with ‘Support and Resistance’ can make use of ‘sideways movement’ to trade.
Basically, you buy near the support level (bottom of the sideways trend) and sell it near the resistance level (top of the sideways trend).
The longer the sideways trend, the bigger the movement on the upside or downside. For example, Reliance has given excellent returns after breaking out from its sideways trend.
Hindustan Unilever (HUL) was in sideways trend for more than 6 years between 2004 and 2010-11. But since then the stock has gone up nearly 8-10 times as of 2020.
Even in this current coronavirus-led stock market crash, HUL has remained rock steady.
Others bluechip companies like Larsen and Toubro are currently in sideways movement. The stock has given no returns since 2008. Traders or even investors need to keep such stocks on their watchlist. If there is a breakout, or if the stock is available near its long-term support levels – these companies can be excellent investments or trades.
Found you on google. Great article. Keep up the good work.