For many traders, trading in the financial market is not an additional form of earnings, but the main income. To profit from transactions, speculators and investors use a wide variety of trading instruments. During the study of trading, all beginners take a basic course on the basic laws of the financial market. They understand the rules of trade, learn about the management of deposit funds, minimize financial risks and study the psychology of its participants.
During training, special attention is paid to methods for predicting market quotes. This is a very important factor in trading. With the help of analytics, you can find out what market situation is happening at the moment and what can be expected in the future: trend movements, impulses or a consolidation zone. In this article, the reader will get acquainted with the concept of “flat”, what it is and how it is used in trading in the financial market.
Forex Flat Definition
When the market is in the consolidation zone, a price range is created. Inside it, quotes periodically change: they drop, then rise, and in this way a flat is created. What it is, you can imagine if you build two lines, beyond which market prices do not go.
Types of flat:
- lateral movement with constant levels;
- directional change in price thresholds with smooth growth;
- movements with replacements of support and resistance lines.
To understand the state of the flat, what it is, we can consider the simplest example with lateral movement.
The figure shows how market quotes move within the price range, but do not go beyond it. Periodically, the scope of the levels may narrow or expand. Such a movement always occurs only in a calm market, and there are no strong impulses in it. With a directed change in the price threshold, market quotes also act within the range, but at the same time they have a slope. And if we consider flat with the replacement of levels, then on the graphs you can clearly see how the resistance line changes to support and vice versa.
Features of trading in a calm market
Trading during the flat is characterized by constancy, which can be both long and short in time. When the market is in the consolidation zone, then all movements on it occur in a calm mode. During a flat, strong impulses or especially trends never occur. During this period, trading on the market is rather sluggish; deals are opened with small volumes of lots. Mostly small and less often medium-sized players, such as private traders, small banks and stock companies, take part in the auction.
This state of the financial market is very easy to determine on the chart yourself. To understand that flat is really a range of market quotes, it is enough to draw lines along the top and bottom of the candles that will determine the bounding box. Graphic constructions must be done in places of a large concentration of candles.
The features of trade in the financial market in the consolidation zone include its easy predictability. It will not be difficult to determine the direction of movement, as well as its purpose, since they are strictly limited by the range. All trading strategies developed for the flat are built according to the parameters of the forecast features for this market condition.
Flat trading strategies
Although all trading methods for working in the consolidation zone have different characteristics, indicators and parameters have common properties and are subject to the laws of the financial market.
Professionals and experts have developed hundreds of the most diverse flat trading strategies. And before choosing any method, you need to make sure that the market is really in the consolidation zone, and also understand the meaning of the term “flat”, what it is, and know its main characteristics and parameters. For example, the article provides a description of the strategy in lateral movement.
Trading method based on levels and the technical indicator "Stochastic"
Conditions for opening a position: you need to make sure that market quotes move in the price range. There should not be any impulses or strong movements on the chart in order for fishing on a flat to give results.
Strategy work:
- In places of large concentrations of candles, on their bottoms, using the graphic tool (horizontal line), set the support level.
- Similarly, the resistance line is displayed, but only along the tops of the candles.
- To filter false signals and confirm them, you need to set the Stochastic indicator on the chart. This tool will show the overbought or oversold zone of the market, that is, who has more (buyers or sellers) on it and in which direction the position needs to be opened.
- Immediately after the candle touches any of the levels and after its confirmation by "Stochastic", an order for Buy or Sell opens. If quotes move from resistance to support, and the indicator has a value from 70 to 100, then the position should be open for sale. With the values ​​of "Stochastic" from 0 to 30 with the upward direction of market prices from support to resistance - to buy.
- Stop-loss is set for support or resistance levels depending on the direction of the market.
- You need to close the catch position on the flat immediately after the candle touches the opposite side of the range. For positions opened for purchase - at the resistance level, sale - in the area of ​​the support line.
Flat advantages
The advantages of trading in the consolidation zone include easy forecasting of changes in financial market directions. If we look at historical charts, we can identify the following pattern: market quotes move within the range from the level of resistance to support and vice versa. They do not go beyond its borders and constantly repeat these movements until there is an impulse in the market, which will later develop into a trend movement.
Therefore, it is very important for all newcomers who are just starting a career as a trader to understand and determine what it is like a Forex flat. All trading strategies developed for trading in the consolidation zone correspond to these specific characteristics and only work when the market is calm and transactions with small volumes are made on it.
Negative characteristics of flat trading
The disadvantages include parameters such as low profitability. Due to the fact that the market is in a rather narrow range, the trader’s profit on transactions will be small. However, a small profit is compensated by the frequent opening of trading positions, which in sum give a good income. And besides, due to the predictability of the financial market, it is easy to predict.
A very common mistake of beginners during trading in the consolidation zone is the inability to determine when the flat feeders end and the impulse begins, which later develops into a trend movement.
The best technical indicators for trading in the consolidation zone
To determine the consolidation zone in trading, graphical and technical tools are used. For example, such as horizontal lines, indicators "Moving Averages", "Alligator", "Zig-zag", "Parabolic", "Bollinger Bands" and other options.
To determine and understand what it is - flat in the rates in trading, you need to learn how to determine it and be able to calculate the profitability of a transaction, taking into account the parameters of the price range.
Conclusion
Forex trading will be profitable only if the trader knows how to correctly use analytics, predict changes in market movements and determine its condition.
And also it is impossible to use trading strategies in the consolidation zone, which are designed to work during trend movements.