What are the most popular flat indicators?
Did you know that the market price spends about 70% in flat mode? This period is the most favorable for novice traders to enter the market. This is because the price trades within certain boundaries represented by support and resistance levels. But how to define a “flat” market?
What is flat trading?
When a market or security does not rise or fall in price, it’s called a flat market. That is, the price moves sideways. “Flat” implies the absence of long and short positions. For a better understanding of periods of flat trading, you should refer to flat indicators.
Technical indicators are mathematical models based on historical data. They are used by traders to predict future price trends and make trading decisions accordingly. Using a mathematical formula, a technical indicator obtains a series of data points from previous prices and volumes.
Flat indicators help identify the periods when the price volume is low and neither bulls nor bears can take control over the market. These indicators also provide an opportunity not only to trade during a flat market but also to determine the formation of a trend at an early stage.
Read on to learn about some effective flat indicators.
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The first indicator to be aware of is Bollinger Bands. Graphically, Bollinger Bands are three lines: a moving average in the middle, which characterizes the main direction of the price movement, and two lines that limit the price chart on both sides and characterize its volatility. They are plotted at a standard deviation above and below a simple moving average.
The main parameters of this indicator are the time period and standard deviation. Each of these parameters can be changed depending on the chosen strategy.
Since the value of the standard deviation depends precisely on volatility, the bands on the chart adjust their width themselves: the distance between the bands can both increase during periods of market instability and decrease during periods of stability (flat trading).
It is important to emphasize that Bollinger Bands should capture about 95% of the prices inside these bands and only 5% outside them.
ADX, or Average Directional Movement Index, was introduced back in 1978 and is still relevant and frequently used. On the chart, this indicator is located in a separate area, and ADX values range from 0 to 100. Most often, the indicator does not rise above 60.
Usually, it is represented by one line, but it may include two special lines that are needed to identify buy and sell signals. These are Plus Directional Movement Indicator (+DMI) and Minus Directional Movement Indicator (-DMI).
The ADX itself is used by investors and traders to determine the absence or presence of a trend. The trend is considered “thick” if the line is below the 25 level. In this case, you should use range-trading strategies. Numbers above 25 reflect the growing strength of the trend.
Flat pulse indicator
Another indicator worth mentioning is the Flat Pulse Indicator. It looks like a histogram with bars of different colors and sizes. The size of the bars and the coloring of the zero level reflect the periods of both flat trading and strong trends along with the direction of trends.
The green color of the zero line indicates the presence of a flat, and the yellow color indicates a trend. The blue bars show an uptrend, and dark blue or purple represents a trend change. A downtrend is shown in red bars, and a change in the downtrend is colored in burgundy. You can determine the strength of the price movement by the bar height.
This indicator is convenient because you can either use the standard settings or create it for yourself and your trading strategy.
The simplest use of the Flat Pulse indicator is to track the dynamics of its histogram in order to determine the best moment to enter the market.
Another example of a flat technical indicator is Aroon. Traders use it to determine the change in a trend, as well as its strength.
The indicator consists of two lines, one of which measures uptrends and the other measures downtrends. An up line, also called “Aroon up,” measures the number of periods since the recent high. A down line or “Aroon down” measures the number of periods since the recent low.
Aroon’s main parameter is the period of time between highs and lows. The indicator moves between values from 0 to 100.
The position of both indicators below 50 can signal the consolidation of prices. Neither new highs nor new lows are created. Traders watch for breakouts and the next Aroon cross to signal which direction the price is moving.
Flat trading implies that there is no definite trend. It is generally accepted that it is easier to trade in a trend, but flat trading occurs within certain boundaries that serve as support and resistance. For novice investors, such trading is easier because they can determine clear levels from which the price will rebound.
The indicators themselves help to determine correction periods when price volume is low, and neither buyers nor sellers can take control over the market.
But despite the various advantages of indicators, you should not rely on them entirely when making decisions regarding your assets. Data can have errors, so it is important to be able to correctly analyze and interpret it. When analyzing the market, you should use at least two indicators or, for example, an indicator and a pattern. Indicators need to be calculated in different ways (different data should be measured) so that their signals do not coincide.