Flat - what is it? Definition, characteristics and application in trading

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

For many traders, trading in the financial market is not an additional type of income, but the main income. Speculators and investors use a wide variety of trading tools to make a profit on transactions. During the study of trading, all beginners take a basic course on the basic laws of the financial market. They understand the rules of trading, learn about managing deposit funds, minimizing financial risks and studying the psychology of its participants.

Special attention during training is given to methods of predicting market quotes. This is a very important factor in trading. With the help of analytics, you can find out what the market situation is currently happening 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 on the financial market.

Definition of a flat on"Forex"

When the market is in a consolidation zone, a price range is created. Inside it, quotes change periodically: they go down, then they go up, and thus 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 flat state, what it is, we can consider the simplest example with sideways movement.

The figure shows how market quotes move within the price range, but do not go beyond it. From time to time, the scope of levels can narrow or expand. Such a movement always occurs only in a calm market, and there are no strong impulses in it. With a directional change in the price threshold, market quotes also operate within the range, but at the same time they have a slope. And if we consider a flat with the replacement of levels, then on the charts you can clearly see how the resistance line changes to support and vice versa.

Features of trading in a calm market

Trading during a flat is characterized by constancy, which can be both long-term and short-term. When the market is in the consolidation zone, then all movements on it occur in a calmmode. During a flat, there are never strong impulses or even more trends. During this period, trading on the market is rather sluggish, transactions are opened with small volumes of lots. Basically, 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 a flat is really a range of market quotes, it is enough to draw lines along the tops and bottoms of the candles that will define the bounding boxes. Graphic constructions must be done in places of large accumulation of candles.

The peculiarities of trading on 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 goals, since they are strictly limited by the range. All trading strategies developed for a flat are built according to the parameters of the forecast features for such a market condition.

Flat trading strategies

All trading methods for working in the consolidation zone, although they 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 various 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 terminology "flat", what it is, andknow 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 "Stochastic" technical indicator

Conditions for opening a position: you need to make sure that the market quotes move in the price range. There should not be any impulses or strong movements on the chart for flat fishing to give results.

Strategy work:

1. In places of large accumulation of candles, along their bottoms, use the graphical tool (horizontal line) to set the support level.
2. Similarly, the resistance line is displayed, but only at the tops of the candles.
3. To filter out 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 is more on it (buyers or sellers) and in which direction you need to open a position.
4. Immediately after the contact of the candle with any of the levels and after its confirmation by the Stochastic, an order for Buy or Sell is opened. If quotes move from resistance to support, and the indicator has a value from 70 to 100, then the position should be opened for sale. With Stochastic values from 0 to 30 with an upward direction of market prices from support to resistance - to buy.
5. Stop loss is set behind support or resistance levels depending on the direction of the market.
6. You need to close the position of catching on the flat immediatelyafter the candle touches the opposite side of the range. For positions opened for buying - at the resistance level, for selling - near the support line.

Flat benefits

The advantages of trading in the consolidation zone include easy forecasting of changes in the directions of the financial market. If we consider historical charts, we can identify the following pattern: market quotes move within the range from the resistance level to support and vice versa. They do not go beyond its boundaries and constantly repeat these movements until an impulse arises in the market, which later develops into a trend movement.

Therefore, it is very important for all beginners who are just starting their career as a trader to understand and define what a flat is in Forex. All trading strategies designed for trading in the consolidation zone meet these specific characteristics and work only when the market is calm and deals with small lot volumes.

Negative characteristics of flat trading

The disadvantages include such parameters as low profitability. Due to the fact that the market is in a rather narrow range, the trader will have a small profit on transactions. However, a small profit is compensated by the frequent opening of trading positions, which in total give a good income. And besides, because of the predictability of the financial market, it is easy to predict.

A very common mistake newbies make duringtrading in the consolidation zone is the inability to determine when flat feeders end and an impulse begins, which later develops into a trend movement.

The best technical indicators for trading in the consolidation zone

Graphic and technical tools are used to determine the consolidation zone in trading. For example, such as horizontal lines, indicators "Moving Averages", "Alligator", "Zig-Zag", "Parabolic", "Bollinger Bands" and other options.

To define and understand what it is - flat in trading rates, you need to learn how to define 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 state.

And also you can not use trading strategies in the consolidation zone, which are designed to work during trend movements.